How would you like your employer to increase your compensation package by 43 percent?
If you would, just follow these two steps:
1. Become the President of the University of Pennsylvania.
2. Negotiate the deal with the Board of Trustees
That’s exactly what Amy Gutmann did.
The University of Pennsylvania increased Gutmann’s compensation package from $1,462,742 in 2010 to $2,091,764 in 2011, according to a recent report in The Daily Pennsylvanian.
The report is based on the University’s most recent tax filing. Gutmann’s 2011 compensation package marks more than a 170 percent increase since 2005, the year Gutmann became President.
Let’s put Gutmann’s compensation into perspective.
The New York Times reported in 2011 that, “in the decade from 1999-2000 to 2009-10, the average presidential pay at the 50 wealthiest universities increased by 75 percent.”
Among Ivy League university Presidents, Gutmann has consistently ranked third in recent years, behind Columbia University and Yale University. However, in 2010, Gutmann was the 12th-highest-paid private university president in the nation, according to a report in The Chronicle of Higher Education. That was not good enough according to David Cohen, Penn’s Board Chair and Chair of the Compensation Committee. Here’s what The Daily Pennsylvanian reported:
After seeing that report, Cohen said, the compensation committee was struck that Gutmann had not placed in the top 10. Given the scale and complexity of Penn, as well as Gutmann’s performance, he said, the compensation committee believed it needed to adjust Gutmann’s compensation to bring it more in line with her peers.”
For whatever reasons the Penn Board did not believe that being ranked 12th in presidential compensation was good enough. Penn needed to be ranked among the top 10.
To look at Gutmann’s compensation package from a different perspective, let’s look at what the average professor at Penn earns. In Fiscal Year 2011, the average Penn full Professor earned $177,139. That means that Gutmann earned nearly 12 times what the average Professor earned, an unusually high differential. (By the way, the compensation of Penn Professors ranked seventh among private colleges and universities nationwide.) By contrast, the typical college or university President earned 3.7 times as much as the average pay and benefits of a full Professor at the same institution, according to a 2011 report in The New York Times.
On average, since 1990, Penn’s tuition has gone up by about twice the rate of inflation, according to Philadelphia Magazine/The Philly Post. The maximum total cost for an undergraduate to attend Penn in 2011-12, was $53,976, including tuition, housing, board, and fees, according to The Daily Pennsylvanian. Gutmann defended Penn’s tuition increases, citing the fact that “costs go up faster than tuition.”
I tend to agree with Harvard’s Dan Pallotta, who has long said that nonprofit organizations should be evaluated based on outcomes rather than costs. He has also advocated for paying nonprofit executives fairly based on the outcomes they have and will achieve. People should not have to work for less just because they work in the nonprofit sector.
Gutmann has achieved great things at Penn, for example: The University recently completed a $3.5 billion capital campaign. Penn’s student applicant pool grew by 9,000 from 2009 to 2011 and has held steady ever since, according to Philadelphia Magazine/The Philly Post. Penn placed number seven among national universities in the latest US News and World Report ranking.
Given that a sizeable portion of Gutmann’s compensation package is incentive-based, part of the compensation growth she has seen can be attributed to her accomplishments.
Some of the questions for nonprofit organizations include:
- How much is it appropriate to pay staff?
- How much more than other staff should the CEO be paid?
- What percentage of pay increase is reasonable?
- If the CEO can earn a bonus, should other staff have a similar opportunity?
- What activities should be incentivized?
- How should a nonprofit set employee compensation?
- When setting CEO compensation, how can nonprofits avoid the cronyism that we have seen among boards and CEOs in the for-profit sector?
- Should nonprofit employees be paid on a comparable basis as their for-profit counterparts?
- How does nonprofit compensation affect the public’s perception of nonprofit organizations?
I don’t know what the answers are. I would like to hear your thoughts.
Specifically regarding Gutmann’s 43 percent raise, please respond to the following poll to tell me what you think:
That’s what Michael Rosen says… What do you say?