American Universities are Not Fortune 500 Companies But Increasingly Model Them

05/29/2015 11:19 am ET | Updated May 29, 2016

In two New York Times op-eds in the last several days, Frank Bruni opined about the disgustingly bloated compensation packages top administrators now get at many American universities. (See "Platinum pay in ivory towers" and "Weary of relativity.") He keyed off of Melissa Korn's May 19, 2015 Wall Street Journal article focusing on former Yale President Levin's $8.5 million golden parachute.

It appears from the Wall Street Journal account that the Yale Board's decision to so lavishly reward Levin was made between 2002 and 2004, and the $8.5 million payment was made when he stepped down from Yale in 2013. But it does not appear to have been made public until now. During the intervening decade, Yale solicited and received contributions from and on behalf of its alumni, keeping Levin's impending payout under wraps.

My late wife, my son and I are alumni of the Yale Law School. My family has contributed what we believe are substantial sums to the Law School with the intent of contributing more. My family and my law firm have even funded a public interest law fellowship at the Law School. I and many other financial contributors to universities did not intend to support such profligate spending for executive compensation when we responded to requests for contributions. We made our contributions expecting that the money would be used directly to advance the universities' academic mission and programs.

As a contributing member of the Yale community, I am concerned about how Yale spends its money. As a citizen, I am concerned about the crass role models for our greater society that Yale and other American universities appear to have become. I worry about how these role models play into the spiraling disappearance of the American middle class, and the increasing and unconscionable chasm between executives' and workers' compensation.

According to the Wall Street Journal article, John Pepper was a senior fellow of the Yale Corp when former President Levin's porcine $8.5 million retirement "benefit was first under consideration." Pepper is still a fellow of the Yale Corp and former Chair and CEO of Procter & Gamble Co. and former chair of Walt Disney Co. As quoted in the Wall Street Journal, he justified Levin's golden parachute because Levin "could have been in investment banking, he could have been in venture capital, he could have run a corporation. Obviously, if he'd gone into other fields, the compensation would be orders of magnitude greater." Pepper and his cohorts (and Levin too) seem to be incredibly tone deaf and arrogant. "Obviously," they lack any sense of an academic as a public intellectual or a university as a public good. What message does this send to American society at large?

If Pepper meant to say that Yale had to agree to the $8.5 million departure pay-out to keep Levin from leaving Yale, and it was necessary to the University's well-being for Levin to remain Yale's president for an additional decade, Pepper's justification is based on incorrect premises. The first false premise is that only a very small pool of people is capable of running great universities. The pool of talented people capable of running great American universities is not infinite, but it is large. No one is indispensable. Historically, even Churchill and FDR were not indispensable to the successful conclusion of World War II.

The second false premise is that to hire and keep talented people as the heads of universities, you must pay them exorbitantly. That flies in the face of the example of the newest President of the University of Texas at Austin. The Wall Street Journal reported that he negotiated his compensation down from $1 million to $750,000.

Pepper's third false premise is that people who have the talents to run great universities also have the talents to run for-profit companies, investment banks or hedge funds. Talents are not fungible. It does not follow that successful academics can succeed in the private sector any more than it follows that CEO's of Fortune 500 corporations can succeed at running universities, or are electable and can succeed as presidents, governors or senators. Nor should we fall into the trap of believing that great universities are the same as for-profit businesses. The challenges and metrics are different.

Levin made his choice to be an academic. Choices should have consequences. Universities' CEOs should not expect to be compensated as though they were working for Fortune 500 companies. Universities are not Fortune 500 companies, investment banks or hedge funds, and academics and academic administrators do not work for such for-profit entities. Nor should we assume, as Pepper does, that the present lavish levels of compensation at such for-profit entities is right or justifiable.

According to Yale's 2013 filing with the IRS, Levin's compensation package in 2012 was at least $1.8 million and jointly with his wife's compensation as a senior lecturer was about $2 million. Did he really need more to stay the course at Yale during the so-called "great recession?" Maybe he thought he did. After all, Lee Bollinger, the current president of Columbia's annual compensation package was an eye-popping $3.4 million around the same time that Levin's package hovered around a mere $2 million.

The cost of higher education to students and their families has grown exponentially since I was a student. Since 1971-72 alone, undergraduate tuition at private nonprofit universities has at least trebled. These costs, which continue to increase, are out of control. They risk compromising one of America's last great equalizers, university education. A major reason for this huge increase is the prodigal increase in the numbers of administrators and their compensation.

Levin's $8.5 million golden parachute may seem a pittance when measured against Yale's nearly $3 billion annual budget, but is it really? According to Yale's website, "In recent years, the average Yale Scholarship (a need-based grant) has been $41,250 for students on financial aid and roughly 52 percent of Yale students receive need-based financial aid." $8.5 million is just over 206 times the average need based student grant. In 2013, Fortune 500 CEO's were making 331 times the pay of their companies' workers. Such data are relevant to persistent concerns about America's disappearing middle class and the increasing divide between the super rich and the rest of Americans.

Unfortunately, Pepper may be right about one thing. It seems that Yale and other great American universities increasingly are being run from the top as though they were like Fortune 500 companies, investment banks and hedge funds. If so, what does that say about America? How do we make it stop? How do we get Americans to act again as though we are all in it together and not just for "me"?