Here's 1 Big Reason College Costs So Much

The Chronicle of Higher Education's most recent Executive Compensation at Private Colleges survey is an interesting read, especially when you consider the disconnect between these college presidents' salaries and the average amount of debt -- $29,400 -- that now sits on the shoulders of the average bachelor's degree recipient.

More than 40 presidents out of 550 were awarded a compensation package that totaled more than $1 million in 2011, which included base pay, benefits, deferred compensation (as well as vested deferred compensation from prior years), and other perks such as debt forgiveness and housing stipends.

High salaries = value?
Many of the top 20 highest-paid presidents work at prestigious private schools like Yale University, Columbia University, and Amherst College, institutions of higher learning that often wind up on various "best colleges and universities" lists. But, does that really mean these presidents are worth the vast sums they're being paid? In other words, are these schools being run with the best interests of the entire institution -- particularly the student population -- in mind?

For example, top-earner Robert Zimmer of the University of Chicago was compensated to the tune of $3,358,723 in 2011, yet his school is ranked No. 5 by U.S. News & World Report's National University Rankings -- in a tie with Stanford University, the president of which is No. 38 for pay. On Forbes' most recent list, Stanford ranks No. 1, based upon factors such as post-graduate success and student satisfaction.

The ability to earn a good living sounds like a swell metric on which to gauge an educational institution, doesn't it? PayScale uses "return on investment" to rank colleges, and the University of Chicago ranks only 116 out of 599 -- not horrible, but not stellar, either. Princeton, on the other hand, clocks in at an admirable 16 out of 599, although its own president comes in at slot No. 51 for compensation -- at a mere $935,326 annually.

If presidents are not being paid to increase the likelihood of student outcomes, why are they being paid so much? Because colleges' Boards of Trustees think they deserve it, apparently. This has led some to opine that the tax-exempt status of colleges like the University of Chicago might be enriching college executives, rather than the students they are meant to serve.

Donations suffer
Presidents' pay packages arguably constitute a small portion of the average private university's budget at a median level of $5,466 in salary for every $1 million in expenses. Still, every dollar counts, and high compensation hurts colleges in other ways -- such as squelching donations when prospective donors know that presidential pay at a particular school is in the top 10.

A study by law professors Brian D. Galle of Boston College and David I. Walker of Boston University note that donors draw their purse strings tightly closed when they see that the head of their favorite college is one of the top 10 best-compensated among its peers. The authors point out that, at No. 11, there is no penalty from donors, even though the pay package may be comparable.

Strange, perhaps, but it does highlight the notion that even the wealthy seem to find steep compensation schedules for university presidents distasteful, and refuse to add to the coffers of a school that bestows such largesse upon its leader. This reduction in generosity was evident even though said institutions ramped up their fundraising budgets following the president's induction into the top 10 best-paid list.

Putting that money to better use
Adding together, the high pay, lost donations, and increased spending chasing those reduced monetary gifts, it seems as if these universities and colleges are wasting a good deal of money. Could these considerable sums be put to better use -- say, by reducing tuition and fees for students, or putting the cash toward financial aid?

In theory, yes, but it's unlikely that the colleges with the top 10 highest-paid presidents will reign in compensation for any reason. For those shopping around for the best education bang for their buck, however, delving into the compensation packages of a particular college's leader -- and its relationship to student ROI -- might be well worth it before you a decision.

Looking for a way to secure your own future?
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (8) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 22, 2013, at 11:17 AM, jesterisdead wrote:

    "Presidents' pay packages arguably constitute a small portion of the average private university's budget at a median level of $5,466 in salary for every $1 million in expenses."

    Just start and stop your anti-capitalism article right there, girlfriend. Sounds like you live in the fantasy world of academia, where all these bad ideas spew.

    Not only are presidents, executives and CEO's pay miniscule in the grand scheme of things, if you pay good leaders too little, they will go to institutions that will pay them more. Only a fool would pay the people in charge of managing every facet of an organization too little.

  • Report this Comment On December 22, 2013, at 11:48 AM, jesterisdead wrote:

    Also, as for your bad reference, the results contradict the author's conclusions "At New York University, where President John E. Sexton has appeared both on The Chronicle's top-10 list and just below it several times over the past decade, the data show a slightly more complicated picture. After Mr. Sexton was listed as the fifth-highest-paid president of a research university in The Chronicle's survey in 2008, donations dropped by about one-third, or more than $100-million, tax filings show.

    But the following year, contributions rose about 20 percent, even though Mr. Sexton again appeared on the top-10 list.

    In an email, John Beckman, a spokesman for NYU, noted that the 2008 fiscal year was in the midst of the recession, a factor that may have played into the drop in donations that year."

  • Report this Comment On December 22, 2013, at 2:09 PM, laskjflkasdhgpq wrote:

    The high cost of college has very little to do with executive compensation. It's because there is a disconnect between payment from the customer to the service provider. Student loans are easily accessible and put off the cost of an education, so students are unconsciously willing to pay more, making universities willing to expand and charge more. It's a cycle that spins upward. Not sure what to do about that since student loans are necessary for many students, but they are the long term cause of tuition increases.

  • Report this Comment On December 22, 2013, at 7:40 PM, blaww9 wrote:

    One salary isn't going to have much of an effect on tuition costs. It's a silly idea.

    I propose that all the tenured profs that make 6-figures and only teach 3-6 hours a week are a huge part of the problem.

  • Report this Comment On December 22, 2013, at 7:41 PM, blaww9 wrote:

    A million dollars spread over 20,000 students is $50 each. Come on. Pull out a calculator

  • Report this Comment On December 22, 2013, at 9:08 PM, DogWise wrote:

    Yes, it can be a problem but again as noted, this is only the case for 50 or so schools in the tune of perhaps $50-75 million saved. Greater culprits include the perception that schools have to spend more on luxury to lure students, tenureship as the right not to teach (or teach very little), and the growth of administration. Thirty years ago, let's say a typical university might have 400 full-time faculty, 100 part-time faculty, 300 administrators for 8000 students. Today those numbers might be instead, 300 full-time faculty, 300 part-time faculty and 500 administrators. The faculty salaries stay the same but the administrators increased. Joined with luxury spending on students (e.g, free van rides, cable TV in each room, etc), the expenses are greater than ever. Furthermore, the hiring/firing concept in universities is really poor conceived. The administrators added are rarely let go if funding decreases (as would happen in the for-profit sector). Why not have the part-time faculty be administrators? That's what used to happen 30-40 years ago. Today professional administrators are an embarrassment to most businesses. An administrator isn't a leader, just a pencil and paper pusher trained with almost no real or special skills. A burden on the university. Consider that many administrators are higher paid than faculty and it adds to the problem.

  • Report this Comment On December 22, 2013, at 10:04 PM, hmrtd74 wrote:

    This is such a nonsense article where the title is just meant to tap into populist poppycock about executive compensation, yet has nothing to do with what's written or reality. This author, like so many journalists today, has NO understanding of economics. I work at a college (at a very middle class class salary in development), and it's not the President's pay that makes college so expensive. It's the government student loan system (which artificially inflates the price) and the practice of discounting (whereby the full-pay, rich parents are paying the way for their own kid plus another on a full ride). Presidents and the other top brass (and highly paid professors, for that matter) deserve the money they get if they get the results. The inflated (and they are inflated to be sure) tuition prices are caused primarily by the aforementioned. Amanda -- go take an Econ 101 course, do some more research and read at least half of what YOU wrote (that shows Presidents' salaries are barely consequential), and THEN write and title your articles.

  • Report this Comment On December 23, 2013, at 3:54 PM, sgfmo1mba wrote:

    While I would argue that any arguement made against executive compensation that isn't done on a case-by-case basis is nonsense, I would additionally like to point out that not every University President receives an inflated salary. Just over 7% of your sample group was in the seven-figure range.

    However, if you'd like a single example of a University President who is well aware of how an inflated salary affects a school, I'd suggest looking up Missouri State University's President, Clif Smart. You'd be hard-pressed to find a college administrator more admired by his students. Shortly after taking over the position, he was given a raise of $25,000. The same week the raise was announced, he wrote a check for the raise amount AND the housing stipend he was given (a total of $65K) back to the University for scholarships.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2772516, ~/Articles/ArticleHandler.aspx, 9/17/2014 11:53:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement