Are University Presidents Paid Like CEOs?

(Photo: Will Folsom)

The Chronicle of Higher Education just published its survey of public university presidents’ compensation, which rose 4.7 percent, with four presidents receiving more than $1 million. During that year, public university faculty salaries rose less than 2 percent, a discrepancy that replicated the previous four years. Why the difference?

Market explanations would be that these wages reflect jobs increasingly well done relative to faculty performance (increasing relative productivity) and/or increasing difficulty in attracting talent.  The first explanation is not credible: having taught at public universities for 40 years, I’ve seen the quality of public universities decline compared to private universities.  (In 1969, one could argue that 3 of the top 10 economics departments were at public universities.  Today, only 1 is.)  Nor is there a dearth of high-quality potential university presidents.

The best explanation is the same as that for increasing relative CEO salaries: cronyism between board members (Trustees and Regents) and the university presidents whom they appoint and meet with.  Are university presidents increasingly superstars or schnorrers? You decide — it’s your tax $!


University presidents are paid, in part, on how well they can raise funds for their university's programs and endowments. I know that was a factor in setting the salary of the University of Washington president's position. Sadly, that has little to do with faculty performance and is somewhat of a factor in recruiting talent.

Joe in Georgia

I agree with Mr. Hamermesh. People at the heads of public or private organizations should have clear methods for determining their salaries based on objective measures of their organizations overall performance. Boards are made up of people who are highly capable and generally more successful and intelligent than the common person. These folks have affinity for and over-estimate the value of people in their positions. One could argue that they would not be in this position if they did not have an inflated estimate of self worth. So they see no issue with paying someone this kind of salary. If any of them believe that it is a little on the high side, they surely feel that this is the least of an organizations excesses. Sort of like university professors with tenure. While the top .01% probably deserve such guarantees (and would get them in contract terms), the vast majority of university professors are quickly replaceable with low relative costs. That is why tenure is bad economics.


Joe D

I accidentally clicked "like" instead of "reply" the first time. Oh, well.

Nice turn from presidential salary to an attack on tenure. Tenure may be "bad economics," but it's good academics. Tenure is what allows university administrations to resist (usually) outside political pressure to fire an academic who may be studying difficult, uncomfortable, or politically incorrect topics. Don't believe anyone who tells you that a tenured professor can't be fired. They just can't be fired without a finding of actual misconduct.

Joe in Georgia

Please see my reply to Kaye further down, I answer why I change the subject to tenure. But to summarize:
I can’t say whether tenure is a good or bad idea, but I certainly take issue with Professor Hamermesh’s saying that the minimum wage is a bad economic policy/idea (in a previous post) but then proceeding to defend another bad economic policy in university tenure. If you are going to make a non-economic defense of tenure, then you must be able to see or at least admit to a non-economic defense for minimum wages. The fact that it wasn’t that long ago that we had prepubescent children working 12 hours a day in the most horrible conditions for pennies in the USA and it still happens in other parts of the world.


To be fair, Dr. Spanier's large compensation was due to severance pay and not a pay raise. Including him (slightly) skews the results.


If only there was some group of economists who use interesting techniques to answer empirical questions like this one.


I would first ask what you are using for your quality metric(s). Judging the quality of an entire university by its economics department is more than a little biased.

Unfortunately, I suspect those appointing university presidents judge quality by the success of the football team - certainly the case for the local state university.


It is all about the Lake Wobegon effect. Nobody wants to admit they have a below average University President or a below average CEO least of all those in charge of hiring them. Thus their compensation needs to be set above average compared to heads of similarly sized Universities and companies.

Every year data is collected showing the average salaries of these organizational leaders and then most organization react by either increasing their leaders compensation to make sure their above average leader receives at least a slightly average salary package or in the rare cases where the board agrees that their organizations leader really isn't worthy of an above average salary then they are actively looking to replace them with a new leader who will be worth it. Thus year after year average compensation spirals upward.

Brian N

I agree the issue is worth exploring, what is also worth noting is that generally tax dollar support for institutions is decreasing-- meaning even public institutions are more private-- and as noted in other posts, ability to raise money is a leading factor in who is eligible for the job.


"Your money?" That sure is stoking a fire. It's very little of your money - and even less taxes that go to public univiersities. Just because I put in 3 cents a year on a section of highway doesn't mean I get to setup a tent on it or paint it fluorescent yellow.

Bob Z

There is no real economics at work here. CEOs and university presidents are paid in the same way: prestige. The more a company/university pays their head, the more important they are. Simple. They want to pay as much as possible, limited only by the level at which their shareholders/stakeholders would complain too loudly.

The post makes reference to "market explanations" and the effectiveness of the job, however those only apply in a scarcity environment. This is an artificially controlled market. In a truly efficient market CEOs and university presidents would be paid at their marginal cost. That market obviously fails at being efficient. It is a big problem.

Just to be clear: consider electricity. The price of electricity is determined by its cost, not its utility. How much less effective would the average worker be without electricity? Apparently electricity is tremendously valuable, but we only pay a much smaller price because it is much less expensive to produce than it is worth and it has a somewhat efficient market.

The real conclusion is that the market for university presidents and CEOs is being manipulated. Great gains could be made for both of these institution families by making their executive markets more efficient. Bring in more people! Don't just keep rehiring the same people regardless of performance! Find other ways to provide prestige rewards than outsize salaries!


Enter your name...

You are comparing presidents:faculty wage ratios, and provide this explanation:

"[It could] reflect jobs increasingly well done [by public-university presidents] relative to [public-university] faculty performance."

Then you reject this explanation:

"The first explanation is not credible...the quality of public universities decline compared to private universities."

That's a complete non sequitur. The relative performance of a public-university president compared to a public-university faculty member has absolutely nothing to do with the relative quality of private and public universities.

As for your rejection of the increasing difficulty of finding a qualified and willing person: I've seen a lot of college presidents retire due to the recession. The job is not fun when the job involves cutting budgets and always saying no and endlessly begging for donations and for taxpayer support and having students protest every cut, every rise in tuition, and the fact that your salary is higher than their annual costs. I wouldn't have volunteered for that job during the last four years.



My father was a university president who gave his heart and soul to that institution. He worked all hours, just like a high powered CEO. He traveled the world meeting alumni and bringing in donations. Yet he still maintained his links to his field and his understanding that he was running a university, not a company.

I would like to think that the modest raises he received over the years were not based on cronyism, but on the fact that the Regents (who, yes, he met with) recognized his value to the institution.

Joe in Georgia

I don't think the question is whether your dad worked hard or was good at his job, but rather are people currently in his profession worth the kind of money they are currently making. My dad only had a fourth grade education and worked in factories all his life, sometimes 2 jobs at a time. These aren't two jobs where you have two titles and are working 40 hours a week. These are jobs 80 hours a week jobs where I would only see him on the weekends. So if you want to compare how hard our dads worked then I am up for it, also I am sure there are other people's dads who have had it even worse so I don't really want to start a pissing contest.

I mainly have an issue with people supporting some of the fringe benefits that are afforded to middle class and upper class workers (such as professor tenure) and then making the point that benefits for hourly workers (such as minimum wage, OT wage requirements, healthcare, etc.) don't make sense economically. Tenure is anti-capital market idea, it is a benefit and is a bad economic policy. It may be good for academics, I can't say I agree, and I certainly don't know enough to make that argument. But to simple say that a minimum wage is a bad idea economically (theoretically) , and then to make excuses for why tenure is necessary rubs me the wrong way. Especially when there is much history (almost 200 years worth) of how our society has handled some of these seemingly simple economic ideas. We have tons of data from times without minimum wages, working age laws, or OSHA standards, is that data somehow invalid? Let me know I am not an economist. Is there any person here who believes that an unrestrained capitalist/libertarian society would not collapse into semi-chaos like communist societies have? Those "communist/socialist" societies that are around now are not communist like the Soviet Union, nor like communism was intended. They are either your typical despotic/oligarchic nations or they have modified their socialism enough to accept some capitalistic tenets. If the minimum wage is a bad idea than so is tenure. If there is a good reason for tenure, i.e., to prevent undue pressure/abuse, that reason also works for having minimum wages.



Keeping to the issue at hand: My point was that the raises he received were based on actual circumstances and not cronyism-- he worked for what he got.