Executive Pay and Why It Matters


In case you don’t know me, I’m that guy at our financial meetings — the one who’s always asking questions (but not necessarily getting answers) about Middlebury’s executive pay. The data I’m talking about, the total compensation of our top administrators as listed in Middlebury’s IRS-mandated Form 990 filings for 2014–15 and 2015–16 (the most recent available), are shown in the accompanying chart.

I suspect that many students, faculty and staff will find the sheer magnitude of these numbers infuriating, especially at a time when tuition increases are significantly exceeding and average faculty and staff salary increases are lagging behind the rate of inflation. But I would argue that it is even more important to scrutinize executive compensation for the same reason we need to pay top executives well in the first place: because incentives matter.

According to the administration, a major contribution to these total compensation numbers has been a program of “stay bonuses.” Nominally associated with the presidential transition in 2015, these payments have been justified by the administration as a necessary tool to prevent senior executives from leaving for other institutions. According to our available Form 990 filings, top administrators accrued these bonuses regularly over several years (at least six in some cases). However, because these bonuses are paid out as lump sums, we account for them as one-time expenses, meaning that they are taken directly from the endowment rather than falling within the constraints of the operating budget. In other words, they are funded by dipping into our long-term savings — an approach that is often suggested, and rightly rejected, to address budget gaps in other areas. 

While the administration has pointed out that our compensation committee sets executive pay to be competitive with peer institutions, it has also acknowledged that this comparison does not take these bonuses into account. And although this bonus program originated before she arrived, President Patton reported to Faculty Council in February 2017 that she has continued it and added additional bonuses for current administrators. At that meeting she also reported that former President Liebowitz is due a bonus that has not yet been disclosed in the available filings.

Since the right incentives can easily pay for themselves through the institution’s overall success, evaluating this approach requires us to reflect on Middlebury’s financial performance over the corresponding time period. Despite a strong economy, we swung to eight-figure deficits that peaked in 2015–16 at more than $22 million, roughly triple our worst shortfall during the 2007 financial crisis. Our credit outlook was downgraded, our auditors found “material weaknesses” in our financial statements, and we recognized that our accounting had underestimated depreciation costs for our facilities compared to generally accepted accounting principles. We added a new $46 million field house featuring a $7.8 million squash facility, a new office in Washington, D.C., and new off-site summer programs at the same time as we did little to address the college’s academic space needs, so that we are now scrambling to build a temporary building to accommodate growth in science enrollments and create swing space for overdue renovations. A New York Times report on family income of domestic college students listed us as the #9 college in the country for the highest ratio of the top one percent compared to the bottom 60 percent.

These outcomes have followed alongside growth in spending. We entered into an agreement to lease a spacious new townhouse dormitory, trading upfront building costs for ongoing rent payments. We committed to pay $14 million over 20 years to the town for a new municipal building and recreation facility, enabling us to establish a park entrance to campus on the site of the former town hall. We added new layers to the administration and created many new administrative positions. We brought in gifts and grants through new initiatives, centers and facilities, but now face the costs of continuing programs past the “fiscal cliffs” when their initial funding expires, along with the ongoing expenses associated with administration and maintenance. The Monterey merger and other ventures that were justified on the grounds that they would generate positive net income, or at least break even, have instead required millions of dollars in subsidies to cover their deficits, indirect costs, opportunity costs and assumed debt.

While faculty do not have access to the detailed financial numbers behind these trends, one data point from our Form 990 filing is that we spent $69.7 million on management and fundraising in 2015–16, compared to the $89.1 million we spent on instruction. It is taking nothing away from the dedicated individuals working hard at the jobs they were hired to do to question whether this allocation of resources reflects the core values and goals of a nonprofit educational institution.

One can argue that the value of these efforts justifies their costs, and that hindsight is 20/20; we should be willing to take risks, not all of which will succeed. But the structure of our executive compensation casts significant doubt on those arguments: Highly compensated administrators with one foot out the door might naturally be expected to focus more on short-term, externally visible benefits and correspondingly less on long-term costs and planning.

In this light, it is also natural to ask how these incentives interact with our decision-making, either explicitly or implicitly. To what extent did the opportunity for administrators to increase the scope of their responsibilities, and therefore their compensation, enter into their decisions to merge with the Monterey Institute, to embark on our now-terminated Middlebury Interactive Languages joint venture, or to expand administrative programs and staff? As we used to say when I worked in the software industry, maybe it’s not a bug, it’s a feature.

It is particularly dangerous, as became clear after the dot-com bubble, to judge executives by the revenue they bring in without paying corresponding attention to the associated costs. But that is essentially what happens if the administration is evaluated by its ability to hit fundraising targets. Doing so creates a powerful incentive to solicit donor support in the areas that will yield the largest gifts, rather than focusing on the most lasting and cost-effective contributions to our highest educational priorities.

None of this is to suggest that anyone actively plotted to undermine the institution’s long-term well-being. As biology teaches us, systems will evolve in response to selection pressure alone, without the need for an overarching design; if one set of practices leads to growth and rewards, it will become dominant. Unlike the natural world, however, in our ecosystem these incentives are within our control because they are created within the institution itself.

Success in higher education is, fundamentally, a long-term proposition. While it’s easier to quantify quarterly fundraising revenue, it takes time to separate true progress from window dressing. As a result, our compensation practices should establish incentives that reflect long-term educational outcomes. They should be applied proportionally across the institution rather than to a select few, and should reward effective deployment of resources over mere expansion. Creating such a system is easier said than done, but facing up to and learning from our past experience is a good place to start.

Noah Graham is a professor of physics.

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19 Responses to “Executive Pay and Why It Matters”

  1. Staff member on March 15th, 2018 12:42 pm

    I’d heard about this executive pay chart from various staff and faculty colleagues, but I hadn’t actually seen it myself until today. It is appalling, and in the face of rising tuition costs, flat salaries for faculty and staff, and six-figure budget cuts to departments each year for the foreseeable future as we dig out of our current deficit, these bloated salaries and “stay bonuses” feel criminal. And speaking of those “stay bonuses,” thank you for shining a light on the fact that they are taken directly out of the endowment. This is frankly disgusting. For those of us who were around during the financial crisis of 2008, we were told repeatedly that we could not touch even a minuscule portion of our billion dollar endowment to help steady ourselves financially. (The same has been said again and again as we face our current budget deficit.) But, it turns out we *can* dip into the endowment! But only to give more money to the employees at the College who already have the most money already! We seemed to have slipped into parody …

    Thank you Noah for this essay — and please keep speaking up at financial meetings.

  2. Rachael Joo on March 15th, 2018 9:02 pm

    Thank you for pointing out just how shambolic the aquisition of Monterey has been. We need to sell it and get out of the business of trying to keep a sinking ship afloat.

    I feel like I can’t complain as a faculty member when I see my staff colleagues being asked to do more with less, but as we can see, the management of our resources has been oriented toward speculation and thrown towards vanity projects.

  3. Retired Faculty Member on March 16th, 2018 8:19 am

    Oh how easily some forget.

    Being head of a college and university during the recession of 2008-10 was difficult enough. At Middlebury, the degrees of freedom a president had were fewer than at other institutions.

    Long before Noah Graham came to Middlebury, 20 or so staff were fired unceremoniously–in 1990–and it ripped apart the institution. The scars remained and probably still remain with staff members who were here then.

    Liebowitz’ most important contribution during his presidency might have been to ensure no staff lost their jobs involuntarily. The appreciation on campus was greatest among those who recall what this campus was like following the 1990 layoffs. A president lost his job over it (Timothy Light).

    Keeping 100 or so staff, when institutions wealthier than Middlebury, had to layoff that number of workers to come close to balancing the budget, is of course one of the reasons there are budget challenges today (and even before today). In addition, instead of stopping the hiring of faculty, the College was committed to protecting the academic program and continued to hire tenure-track faculty. Again, another reason for the current financial situation, but done in concert with what was determined to be the highest priorities on campus: protect jobs, protect benefits, and preserve the academic program. Let’s not forget this.

    In addition to these reasons for the financial challenges, let’s not pass over fundraising, where alumni participation and total dollars given to the College has declined noticeably over the past two years. That has certainly exacerbated deficits: nobody plans to have fundraising go flat or negative with deep drops in alumni participation.

    And Professor Graham (and others) should be aware that most presidents have contracts that give “deferred compensation,” which are not “bonuses.” Deferred compensation sets aside $$ each year and, if employment goals are met after several years, the funds are given to the president upon retirement. The set asides do not come from the endowment, as he suggests, but from operations each year so the payout does not have a huge impact on either the operating budget or the endowment. And, the annual 990 report reports these funds twice: in the year they are set aside but not awarded, plus the total amount in the year the former president receives the payment.

    Executive compensation is an important topic and needs airing for sure. But the issue is complex and we should not simplify things as Professor Graham has done.

  4. John Schmitt on March 22nd, 2018 9:07 am

    With respect to funds paid to the president upon retirement: my understanding is that the endowment is used as a ‘storage tank’ for these funds until they are called upon.

  5. Noah Graham on March 16th, 2018 2:19 pm

    Retired Faculty Member,

    Thank you for contributing this perspective. Just to clarify some points:

    “Stay bonus” is the term used by the administration, for example in the faculty council meeting minutes that I cited. According to those minutes, President Patton said, “Stay bonuses are not accounted for in operating expenses, but from capital expenses.” At a financial meeting this statement was clarified to refer to one-time, rather than capital expenses (but still outside of the operating budget). For well over a year now, I have tried to get a fuller picture of exactly the kinds of complexities you describe, but the consistent response I have gotten is that the administration is still working to understand the history of this program.

    I agree that the administration’s performance during the financial crisis was excellent. But these bonuses date from after that period; they have been described as tools for retention around the presidential transition, and it is over this time that our deficits have been considerably larger. I would add that one way the institution was able to weather the financial crisis was by reducing faculty and staff salary increases, a necessary step that at the time was coupled with salary cuts and freezes for the President and the members of the President’s Staff. But now it seems that the latter was only part of a fuller picture.

    Said another way, I am all for higher executive compensation, as long as that compensation is set at a similar level compared to our peer schools as faculty and staff salaries are (and similarly for things like financial aid). That way, we all move up or down together based on the institution’s success. I was not able to find anything like these levels of compensation at peer schools, even during presidential transitions, but I would certainly welcome more data on this point.

    I cannot comment on the downturn in fundraising (to my knowledge the information shared with faculty has not mentioned this), but a key point of my piece is that one cannot focus on raw revenue numbers; one also needs to look at the associated cost of bringing in that revenue. I would be interested to better understand why fundraising would have fallen off during a strong economy, even prior to the events that made national headlines, and what you mean by the greater restrictions on Middlebury’s freedom to respond to the financial crisis. More broadly, I agree that more data (beyond compensation) would be helpful, but I am limited by what is included in the public filings. Furthermore, when an audit of our financial statements includes findings such as an uncorrected $3.4 million “unreconciled variance,” it is a cause for concern.

    You are correct that the Form 990s can double-report compensation. The data listed here should have no double-counting, however, because FY16 filing only listed previously declared compensation for one individual, and based on the data in the filing I removed the corresponding amount from the FY15 number. However, you are right that one should be aware of this point in reviewing prior Form 990 filings together with the data given here.

    Finally, you mention former President Liebowitz specifically, but as far as I can tell the data listed here do not yet list any incentive payments for him, nor do the Form 990s list any deferred compensation over this time (he is listed as a participant in the plan with amount $0). Beyond President Patton’s statement that I referenced, there has not been any information released about his deferred compensation, if any. So in his case I would reserve judgement until this information is available.

    Again, thanks for your thoughtful response.

  6. Staff Member on March 17th, 2018 12:16 pm

    Even at Middlebury, we perpetuate income inequality. The system of “stay bonuses” (what a loathsome term) bears striking similarities to Trump’s tax rewards to the one percent. From the rank and file, I have to ask: Does anyone care if I stay? Presumably, the folks on this chart are the ones who are going to tell us how much we need to tighten our belts in the coming years.

  7. Alumni on March 18th, 2018 8:26 pm

    This is pretty appalling. First, no business would pay retention bonuses his way – they should be paid over a much longer period of time. Second, even without bonuses, these levels of comp are insane, esp when compared to what faculty is paid.

    As a fairly wealthy alum, who hasn’t had Middlebury in my will since before I graduated, it’s pretty hard for me see these types of numbers and feel comfortable giving Middlebury money.

  8. Parent on March 19th, 2018 2:39 pm

    These numbers bother me, too. When I see student accommodations in Batell and Pearsons, and I don’t get a penny of financial aid, I wonder why some of the money is not used to upgrade the dorms. This is especially apparent when you visit the athletic facilities (some of the students) versus the living facilities (all of the students). It is disappointing.

  9. Noah Graham on March 19th, 2018 7:32 pm

    Thanks for trusting us with your son or daughter — I am of course biased, but I would emphasize we have a highly dedicated and talented (if occasionally cranky) faculty, strongly supported by institutional resources, which enables us to deliver a top-notch education. I would just like to keep it that way! (And you make a very good point, but the dorms do get nicer for juniors and seniors.)

  10. Staff Member on March 19th, 2018 3:11 pm

    Very interesting, and a number of great points. Two things would strengthen the analysis:
    (1) Indicate, without naming anyone, the number of years the incumbent has been in each position. Salary numbers are meaningless absent some context. While some may have “one foot out the door,” I can tell at a glance at least one person on that list has been here something like 30 years, so such individuals do have a clear interest in the long-term health of the institution. It would be informative to know the breakdown (and for those who’ve been here a short time, what is the average tenure of previous incumbents?).
    (2) Indicate which positions are truly funded by Middlebury versus by external sources. Some executive positions are 100% or nearly 100% grant-funded, and thus by definition market competitive because the incumbents in those positions must raise their own salaries in external grant funding every year. It is not a fair comparison to lump all the executive salaries into one category the way they are here without talking about where that money comes from and the different ways in which positions are funded. But I don’t disagree with most of the concerns raised, just that some greater context is needed in order for there to be more useful normative take-aways.

  11. Noah Graham on March 19th, 2018 7:10 pm

    Thanks for raising two good points. On #1, stay bonuses were described as “a one-time payment to keep folks from leaving for another institution,” in the meeting minutes I referenced (and similar statements were made in other presentations on campus), so that’s what I meant by “one foot out the door.” It could be that there is more to the program, making it more like a regular deferred compensation package for which length of service is relevant (bear in mind that it originated under the previous administration), but that’s the information I have.

    On #2, I don’t know the answer; you’re right that some positions could be funded all or in part by gifts, grants, or both. The CNS and HATC positions might be particularly likely candidates to be in this category. Here I am just reproducing the information that is already publicly available.

  12. Harriet Napier on March 19th, 2018 5:52 pm

    As an alum of Middlebury and a native of Addison County, I am not only appalled but truly embarrassed, infuriated, and pained by this information.

    Everyone knows that Middlebury College is not a beacon of equity and inclusion, but I did not realize that the situation was this dire – that our own administrators were perpetuating the income gap that I am sure they speak frequently of closing. Do they feel the oxymoron that they live? I am truly curious. Are their jobs this painful that they require a salary that is double or triple (or more) that of the teachers that do the work for which this institution is known?

    The income gap between administrators and faculty is shocking. I am not sure what the workday looks like for any one of these individuals (and I won’t pretend to), but I am quite confident it does not include dealing with groups of 10-50 college kids for numerous hours in a classroom setting then going home to grade papers and develop lesson plans and counsel students who need additional support- as well as pursue independent research so that they may publish and potentially secure tenure. I have watched my mother do all of this – and she has for over 35 years, using the same chalkboards in Monroe and Twilight Hall, working in an office with a leaking ceiling, no wireless internet, and a broken radiator. She would have to work for over five years to earn what the President does in just one.

    I’d like also to see the gap between administrators and other critical staff, whose contributions are no less essential to the functioning of the college. Let’s look at the custodial staff? The grounds crew? How about those who cook the food – day in and day out – for the entire student body… three times a day?

    @ President, what is behind the immense raise you received between this year and last? Is this the type of salary you require to support an institution like Middlebury? A student body like the one you currently serve? If so, why?

    The major take-home for me in reading this publication is that we indeed do not have a shared goal at Middlebury College. Clearly, we are not working in solidarity across the faculty/staff/administrator divide to extend quality education to the next generation with the same principles to guide us. Clearly we are not united by a mission to foster an environment of open learning defined by mutual respect for all individuals involved in the process of creating, delivering, and sustaining academic and social learning across our campus. Clearly we are holding neither frugality nor equality as ethics of this institution.

    To each individual on this list (and to those who are thanking their lucky stars to have been excluded but known very well that they earn more than they need to be earning): If you dropped your salary, what kind of opportunity could you be providing to a future and potential student who may not, like your own children, have been born into riches?

  13. Noah Graham on March 19th, 2018 7:38 pm

    Thanks for this — on the specific question about the President’s salary, I would just note that the second number represents a combination of the amounts for the current and previous president, so there may be a period of overlap or some other reason for the larger total; I don’t have any information about this beyond what’s in the public filing.

  14. Alum on March 23rd, 2018 5:59 am

    Hi – a quick review from an interested Alum.

    Noah’s Points:
    • Stay bonuses not appropriate – never used on other transitions here or elsewhere

    • Comp would be based on achieving meaningful consistent goals that are clear to the whole community

    • The cabal continues – all this has happened on Laurie’s watch – using for 1 year when Ron left may be defensible – may be – though I don’t think so

    Other points:
    • Reference to deferred comp is BS as noted by Noah in this response.

    • Multiple of staff are not appropriate – bet these guys take high horse in “inequality” debate

    • Hypocrisy of these being people asking rest of college to tighten belts

    • Parent and Alum comments right on:
    o Not gonna give to Midd with such frivolous spending
    o Some Dorms suck – equality with sports facilities – we know there story there – NARPs rebel

    I would add:
    • Need transparency – been saying it for 25y – including budget, fund raising and real incentives and consequences

    • Need comparable data from other institutions for real understanding

    • Midd is not a destitute institution – we do not need “stay bonuses” – feeble excuse for administrator rewarding their buddies – once again Midd punching below our weight due to insecurity – Board & Leadership problem

    • Stay bonuses are hilariously inappropriate as we never fire anyone and have low turnover in these positions relative to peers (I would bet)

    • Quality of our Admin is C- versus students/fac/staff is A-

    • Figures probably do not include the very generous Tuition bonuses – which all should be reminded are invaluable

    • Purchasing power parity – the differential in costs between Midd and Mid-town Manhattan – is probably a discount of 65-75% – which is not even mentioned – applied to staff but clearly not administration

    • We should hear from the comp consultants – as you know this is same conflicted game played in boardrooms across America the board pays the consultants who set the CEO comp in a viscous cycle reinforcing bad habits by using self-inflating peer groups and rationalized by rightly paranoid board members in our litigious society

    • Where are the Board members in this debate? Shouldn’t they be defending this.

    • Quality of this conversation is appalling – Admin hope it will raise the draw bridge and this will go away by ignoring it.

    • Where are the students in this – esp. those who pay full tuition – this is reflective of quality of debate on campus the privileged i.e. those who actually pay these salaries are not heard from and those who receive financial aid feel too privileged and embarrassed b/c they too get a great, unfair deal.

  15. Noah Graham on March 23rd, 2018 1:00 pm

    Just to clarify — there is a significant delay before these data are released, so for the most part this list represents the previous administration, a significant fraction of whom have left; as far as I know none of these policies originate from the current administration. (That is why I think this is a good juncture at which to discuss these questions.) I believe all forms of compensation are included here; as far as I know there is no double-counting of deferred compensation within these data, but as I mentioned some of the compensation shown here was accrued in previous years.

  16. Noah Graham on March 28th, 2018 7:22 pm

    To follow up, I would like to add some important further information to public data given here. Per IRS rules, the numbers include all forms of compensation, including benefits such as health insurance, etc. Positions such as those listed as Directors can combine academic and administrative compensation, with (as suggested by a commenter above) a large fraction of the total provided by external funds. I would add that for several on the list, compensation levels reflect a long term of service, which I consider very much in keeping with the compensation practices that I am advocating for.

  17. Elise on March 29th, 2018 11:01 am

    Stay bonuses, deferred compensation, and income from restricted grant sources may be valid tools for retention and performance, but:

    -These numbers are huge, at least to those of us not working in a major coastal city;
    -With numbers this large, I agree it’s valid to question what exactly is being incentivized;
    -The 990 is the college’s public-facing financial document, like it or not, and these optics are bad. The college should do more to be transparent about why resources are allocated the way they appear here.

    I’m an alum and I live and work in Addison County. Rationally I know the money I donate goes to support some outsize executive salaries, but actually seeing the numbers is like a punch in the gut, when I’m being asked to give year after year and meanwhile toiling away at a local nonprofit (trying to build more affordable housing and solve a problem the college is frankly exacerbating) for a fraction of the salaries on this chart. It’s saddening that the college’s strategy for dealing with this will probably be to raise the drawbridge and hope it blows over without many donors noticing, since that’s so out of whack with the values I was taught at Middlebury, and the values of inquiry and open debate that the administration has been touting especially loudly this past year. Though perhaps not surprising given the feeling that calls for equity and inclusion are met with lip service from the administration.

  18. Noah Graham on March 29th, 2018 12:32 pm

    FWIW, I do not fault the administration for lack of response — it takes time for a new administration to make changes, these are difficult questions for them to comment on, and there has been strong openness to discussing these questions.

  19. Kyle Freiler on April 2nd, 2018 2:42 am

    Dear Professor Graham,

    I am a junior at Middlebury, and I just wanted to thank you for your thoroughness, fairness, and candor in examining this issue. I had the opportunity to read your article once before while copy editing it for The Campus, and I just now was able to read the responses to it, and your responses in turn. I must say I was quite unaware of the politics of this situation prior, and it was both illuminating to read your analysis, and heartening to hear your commitment to Middlebury and its improvement. So thank you so much, and I hope this issue–and the broader concerns it raises regarding administrative and financial transparency–receive more currency moving forward.

    With great regard,

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Executive Pay and Why It Matters