$37,000 Chancellor Pay

UC Davis is mentioned in a Slate piece investigating skyrocketing compensation of public university executives as an example of such excesses. Chancellor Katehi's $400,000+ yearly compensation is compared to Chancellor Mrak's 1969 compensation of $37,000 (inflation-adjusted: $226,000). Mrak's successor, Meyer, was hired in 1974 with annual compensation of $47,000 (corresponding to $214,000 when adjusted) and left in 1987 with compensation of $98,000 (which adjusts to an amount, $195,000, which is actually lower than the one is was hired at). Did we mention that Mrak and Meyer actually knew how to deal with student protests?

The cause of such excesses, at least at UC: a decision by then UC Senior Vice President Ron Brady to peg the pay of top administrators to private sector standards, instead of to state public servant pay (as bemoaned by Clark Kerr in a 1999 interview).

Backroom Deals

This past Monday, after hearing the plight of students for never-ending tuition hikes and their outrage at the trampling of their constitutional rights at Berkeley, Davis and elsewhere, the Regents of the University of California promptly reconvened to a separate, smaller room for the non-public portion of their meeting, where they provided yet another resplendent  example of their vision, leadership, and courage in steering the UC ship in these stormy waters.

Once outside of public scrutiny, the Regents promptly proceeded to approve 9.9% pay raises for three vice-chancellors (UCLA, UCI, UCSF) as well as for a number of university lawyers. But the lottery winner was indisputably UC Davis general counsel Steven Drown who got a whopping 21.9% salary raise (only UCDMC chief operating officer got a bigger raise, but medical center employees' salaries benefit from the revenue the bring to the University). Mr Drown was noted during the recent "events" at UC Davis for his very visible absence while the students' first amendment rights were being covered in orange pepper spray.

In the meantime, it looks like a section of UC Davis faculty, mostly from the sciences and engineering, have launched Operation SCA ("Save the Chancellor's Ass"). One is reminded of not too distant proceedings at Irvine, when Chancellor Drake hired, fired, and re-hired Law School Dean Erwin Chemerinski, all in the same week. UCI science and medical faculty also rose en masse to save Drake's ass, quite possibly in return for Drake's saving their asses when the Medical School was selling body parts and fertilized human eggs on the black market.

The Gilded 36

I have been asked why I have not commented on the preposterous threats and demands of the "Gilded 36" (as I suppose they will go down in history), and in fact I realize that the California Professor has been on hiatus for a month (well, I have been busy, and then of course started teaching this week).

The facts are known: in a public letter to President Yudof, thirty-six highly paid UC executives, mostly from the Medical Centers (but not only), demanded that the University lift the $245,000 cap on compensation that goes into calculating UCRP benefits, citing a 1999 decision by the Regents that was only contingent upon the IRS's waiver of such cap for UC (which was granted in 2007). Should the University fail to abide by the Regents' 1999 decision, the gang of 36 complained of the "demoralizing" effect of such failure, and should the University further fail to be swayed by compassion for the 36 executives,  legal action was threatened.

The preposterous and tone-deaf demands did not go unnoticed. See for instance the excellent discussion by  Chris Newfield and Michael Meranze, as well Bob Samuels' post. It is just amazing  that at a time when instructional budgets are cut, student fees raised, employees fired or furloughed, retirement benefits reduced and contributions increased, these people come through with such requests.

It is also important to notice that the 36 signatories of the letter are not by any means the only ones who stand to benefit from a raised cap. There are many more, perhaps hundreds, of employees across the system with covered compensation above $245,000. But interestingly enough, very few of them actually ever see a student. (The increased retirement benefits were defended by Boalt Hall Dean Chris Edley and UCLA Economics Chair Roger Farmer.)

President Yudof and Regent’s Chair Gould have now replied that the 1999 decision by the Regents to pursue a waiver of the cap from the IRS did not further "obligate the University in any way to proceed with its proposal." Accordingly, they claim,

the action taken by the Board 10 years ago was not self-executing and that the pension proposal was never implemented. Months ago, the Board retained counsel to assist the University in the event this position should need to be defended in the courts. While those who signed the letter are without question highly valued employees, we must disagree with them on this particular issue.

It's interesting to note that the Regents knew "months ago" that this was coming, to the point of retaining counsel:  the Gilded 36 must have been making noises for quite a while.

Now, some think that it was all orchestrated: the gang of 36 come out with preposterous demands, the Regents and the President respond in kind, and finally a "compromise" is reached, perhaps in the form of a raised cap of some sorts. The Regents and the President save face and the highly paid executives get their benefits increased. It is certainly odd that such an effort is being spear-headed by Edley, who has so far consistently come down on Yudof's side of every issue. Of course we don't know if the orchestration actually took place, and we don't know what Yudof was told by legal counsel (but we would really like to know).  Given the outrage that the letter  produced (to the point of getting the Legislature involved), either the Gilded 36 know that they have an air-tight legal case or they spectacularly miscalculated.

What else did the Regents do?

Well, we know the Regents increased student tuition by 8%, and we know that one UCPD oficer drew a gun on students protesting the fee increase (UCPD also proceeded to take down legally posted fliers on the Berkeley campus denouncing this extreme over-reaction to the student protests — so much for the First Amendment).

Less known is that the Regents also proceeded to approve total compensation of $481,000 for the Vice Chancellor of Research at UC Davis, an increase of $243,600 over the compensation previously approved for this position. Executive VP of Business Operations Nathan Bostrum justified the appointment by pointing out the plight of UC's senior managment:

If you look at our senior management, they're grossly underpaid relative to the market. Our chancellors are 22 percent under market relative to other executives.

Here is what $3.1M in incentive pay will buy

Well, not much, it would seem. The Mercury News reports today that federal inspectors have uncovered "dozens" of problems at UC Irvine Medical Center, from sub-par storage of drugs to lost patients' confidential information, to poor oversight in general. So many problems were uncovered, in fact, that UCI MC risks losing millions in federal funding. We don't know how many of the 38 managers that will receive the incentive pay approved yesterday by the Regents are at UCI MC. But we do hope that the Regents will see it fit to rescind any incentives to be paid out to UCI MC managers.

$3.1M in incentive pay at UCMCs

During their their meeting this week in San Francisco, the Regents are expected to approve $3.1M in incentive pay for 38 senior medical center managers. That's an average of $81,600 for each manager, with David Feinberg, head of UCLA's Medical Center, earning close to $220,000 in incentive pay alone.

UCSF Chancellor Susan Desmond-Hellmann said her hospital saw a more than 5 percent drop in one type of infection, and that 89.5 percent of patients surveyed reported being satisfied with care. "This is how you run a great medical center," she said, referring to incentives.

The $3.1M do not come from state funds, but from medical center profits. According to the SF Chonicle,  the University would likely be sued if they did not approve the incentive pay (as such incentives were in the managers' appointment letters).

This raises a couple of questions:

1. The MCs are turning out millions in profits, should they not be asked to help support the University at large, the same way in which the University at large supports them?
2. There are many faculty and perhaps staff whose salary is specified in their letters of appointment or promotion. Why does the furlough program not expose the University to potential lawsuits from these faculty and staff?
3. And, since we are at it, why not extend the incentive program across the board? Here is a deal: if 89.5% of my students are satisfied with my teaching and I increase their test scores by 5%, I propose that the University  award me the average incentive of $81,600.

Senior Management Accounting by Leger-de-Main

Stung by increasing reports of excessive executive compensation, UCOP has taken swift and decisive action to address the issue and  reduce the ranks of senior management at the 10 campuses, and without requiring the retention of fancy — and expensive — East Coast consulting firms. In a brilliant move that fully vindicates the high regard in which our leadership is being held throughout the UC, in Sacramento, and across the country, UCOP has amended the APM to reflect a reclassification of school Deans from senior management to academic personnel.

According to the old version of sect. 240 of the APM, Deans are typically appointed as senior management, and their compensation determined according to the Personnel Policies for Staff Members:

For Deans and Provosts appointed in the Senior Management Program, the Personnel Policies for Senior Managers, also apply.

According to the new version of sect. 240 of the APM,

Except as specified in APM - 240, Deans are subject to all Academic Personnel policies. ... A Dean with a concurrent title of Vice Chancellor and/or a Dean who reports solely to the Chancellor are governed by Senior Management Group policies.

Deans "who report solely to the Chancellor" would appear to be those that are not heading an Academic Unit, e.g., Deans of Students etc.

Having re-classified Deans as Academic Personnel, one would expect them to be subject to review by CAP, but in a not unexpected twist, reviews at the Dean level are "distinct from academic merit review."

Our admiration for the Great Helmsman in Oakland grows deeper with the realization that this change is effective Jan. 1, 2010 but it appears to have been made public only very recently, when people are busy with exams or away on Winter break.

Dirty old tricks?

I'd like to pick up on Bob Samuel's informative post concerning a study on UC's compensation practices commissioned by UCOP. According to the study, UC salaries are 22% below market for senior managment and senior professionals, but 18%  above market for union-represented employees. Faculty are about 10% below market. Given the recent wave of indignation about the explosive growth of high administrative positions, this seems like an eminently self-serving outcome. And in fact, not everything is kosher in the study, which was not based on total compensation:

Consistent with industry practices, cash compensation was defined as base salary, excluding forms of rewards that generally are not a part of ongoing compensation.

It's the same old trick: furlough amounts were also determined on base salary alone. exempting highest-paid employees' generous extra compensation from the reduction. 

The importance of being Ernst

According to a report released by State Auditor Elaine Howle, UC CIO David Ernst was improperly reimbursed for $150,000 in expenses between Juy 2005 and July 2008 while working at Cal State as chief of information technology services. The Howle's report points out that

The official received $152,441 in improper expense reimbursements over a 37-month period from July 2005 through July 2008. The improper reimbursements included expenses for unnecessary trips, meals that exceeded the university’s reimbursement limits, the official’s commuter expenses between his home in Northern California and the university’s headquarters in Long Beach, living allowances, home office expenses, duplicate payments, and overpayments of claims. 

In July 2008 Ernst was hired at UCOP as Chief Infomation Officer, at a salary of $238,000 (you can always count on UCOP to recognize and reward talent). In the meantime, state Senator Leland Yee has called for Ernst to return the improperly payments, while AFSCME has called for Ernst's resignation.

Senior managment explosion

According to a study by the Council of California Faculty Associations, the University of California has been engaged in a veritable hiring spree when it comes to senior management, to the point that there are now almost as many senior managers at UC as faculty members.

There were 2.5 faculty member for each senior manager at UC in 1993, today it's virtually one to one. If the 2.5 ratio had been enforced, UC would save about $800M — which is, by coincidence, the very same amount of the current budget shortfall over last year.

It would seem irresponsible to furlough and lay off people often making a fraction of what senior manager make — the janitorial and service staff, the lecturers and other temporary faculty as well as many of the regular faculty  — the people who make the university run — when there is such a glut at the managerial feeding trough. It is also worth mentioning that while there might be some doubt as to whether UC uses student fees to pay for debt service on construction bonds, executive salaries unquestionably come out of core funds.

All hat and no cattle

If one needed any  proof that Gov. Schwarzenegger's emphasis on transparency and accountability is just for show, one would have to look no further than the Governor's veto of  S.B. 86, S.B 218 and S.B 219.

S.B 86 would have imposed limits on executive compensation at CSU and UC; S.B. 218 would amended the California Public Records Act to include organizations performing auxiliary functions for CSU and UC; and S.B. 219 would have extended whistleblower protection to UC employees. All three bills were introduced by Sen. Leland Yee, and approved by the Legislature. All three were opposed by senior management at UC and CSU.

We had already commented on Sen. Lee's laudable efforts. It does look like Sen. Lee and Lt. Governor Garamendi are the only ones left in California public life who have any sense at all.

Schwarzenegger defended his veto of executive compensation caps by claiming that

A blanket prohibition limiting the flexibility for the UC and CSU to compete, both nationally and internationally, in attracting and retaining high level personnel does a disservice to those students seeking the kind of quality education that our higher education segments offer.

But even if we agreed with the Governor's (and UCOP's) privatization strategy, this seems backwards: if it wanted to guarantee students the best education experience California has to offer, the University should be actively recruiting and appropriately compensating its faculty, not the administrators. Let me ask you: When's the last time you heard of universities and colleges being ranked by the quality of their administrators? I can imagine it already, US News and World Report advising students to attend such and such a school — they have lousy teachers and no facilities, but their administrators rock!


The other lesson we learn from this (besides the fact the Governator talks the talk but does not have the balls to walk the walk), is that UC's (and CSU's) lobbying efforts paid off handsomely, at least for senior management at UCOP and across the campuses. The lobbyists UC employs (at an annual cost of $1.6M in payroll only) obviously managed to get the Governor's ear, convincing him to overturn the decision of elected officials in the California legislature.

Mark Yudof: the big man on campus

On the day of the faculty walk-out UC Pres. Mark Yudof is being interviewed by the New York Times about the recent tuition hikes and the budget shortfall. What better venue to address the issues at hand while at the same time put forward the President's vision for the future of the University? Instead, President Yudof decides  to use the NY Times interview in order to:

1. Defend his compensation package;
2. Deflect blame from California Governor Schwarzenegger for the sorry state of UC's finances;
3. Justify his housing allowance.
   

It might appear that it is true of Yudof as well what Abba Eban used to say of Yasser Arafat — that he would never miss an opportunity to miss an opportunity.

There is however one revealing bit in the interview. Asked whether he blames Gov. Schwarzenegger for UC's troubles, Yudof responds:

I do not. This is a long-term secular trend across the entire country. Higher education is being squeezed out. It’s systemic. We have an aging population nationally. We have a lot of concern, as we should, with health care.

This is a long-running theme for Yudof, already rehearsed in his 2002 Chronicle piece:  the trend towards de-funding public universities is mainly due to demographics and is therefore here to stay: an aging American population is more interested in health care than education.

Although President Yudof's premises might be questionable,  his strategy is coherent, if poorly executed. The Pitts memos were definitely a tactical blunder (without them there would have been a much smaller action on Sept. 24, or perhaps none at all), as is this NYT interview, which can only aggravate Yudof's image problems. UCOP's tactical carelessness is probably due to the conviction that UC senior management have exclusive access to the truth (they'd better, given their compensation packages), and anybody who questions UCOP's wisdom must be in bad faith. The same kind of hubris is behind the following snippet:

What do you think of the idea that no administrator at a state university needs to earn more than the president of the United States, $400,000?
Will you throw in Air Force One and the White House?

 The man is aiming high, which might be good news for the University, if not for the country.

Administrative rot

We have already commented on the administrative bloat at the University of California, for instance the fact  that admistrative positions in the $200K/year and above range doubled between 2006 and 2008. But sometimes adminstrative bloat rises to the level of administrative rot. Here is a story worth telling, all of whose pieces mentioned below are available in the public domain, but perhaps more can be uncovered with some more thorough digging (FIA, anybody?).

Once upon a time, there was an incredibly weathy, impeccably managed, multi-billion-dollar pension fund. This was, of course,  the UCRP, which provides the defined benefit plan for all UC employees, and the person who had been managing it for a long time was Patricia Small. Armed with a BA in Economics from Marymount, Patricia Small had served as the Treasurer of the Regents for many years, managing $58 billion's worth of assets, and ensuring stellar returns for the UCRP fund, year in and year out. Working out of her office at UCOP, she managed the UCRP funds based on a simple but effective strategy: invest in long-term bonds, which are more appropriate for the defined benefit nature of the plan, and in stock from a small number (65 to 80) of companies, and all of this with a small in-house staff and at a minimal cost to the University. The strategies had been so successful that UCRP started requiring no contributions from employees beginning in the early 1990's until, well, next April.

As one might expect, the prospect of untapped millions of dollars in potential brokerage fees sent investment managment firms salivating all across the great State of California.

Enter Gerry Parsky who was, at the time, Chairman of the Board of Regents (he was also at some point an official in Nixon's treasury department, a real estate, junk bond and venture capital investor, as well Chair of G.W. Bush's 2000 and 2004 California Presidential campaigns; Parsky is also the Chair of Schwarzenegger's Commission on the 21st Century Economy whose highly regressive proposal for tax overhaul has just been released).

In 1999, Parsky spearheaded the Regents' effort to remake UCRP's investment philosophy. They contracted Wilshire Asociates (at a cost to the University of $350,000) to analyze UC's investments and recommend changes. By pure happenstance, in July 2000 space tourist Dennis Tito, Wilshire's CEO and Chairman contributes $80,000 to G.W. Bush's California campaign.

Not surprisingly, Wilshire found the UC strategy "risky" and recommended that UC disinvest in long-term bonds to invest in domestic stock index funds. When Patricia Small objected to these changes, she found herself blackballed by the Regents and effectively forced to resign. Three days after her resignation letter, the Regents appointed — surprise! — Wilshire to implement the changes.

As a result, by 2002 UC was paying millions  to external fund managers to oversee the University's stock portfolio. This led to a decline in profits, partly because of the cost, but partly also because of some stupid and risky choices (such as riding Enron stock all the way down from $140.00 to $0.07 at a $145M loss to UC). Wilshire was subsequently awarded a contract to serve as general pension consultant ($1.3M over 3 years),. It was during this period that the Regents instituted the Treasurer's Annual Incentive Plan (AIP), which awards up to 150% of base salary for exceptional performance, as determined by the Regent's consultants. Wilshire was later involved in the fast-trading scandal  and they were finally dropped in 2004 favor of Richards & Tierney (now Nuveen), which in 2008 was in turn replaced by Mercer Investment Consulting. This is the first part of the story: details can be found in an East Bay Express article from which much of the above information is derived, as well as Charles Schwartz' exemplary and thorough treatment.

But let's go back to Patricia Small's position as Treasurer of the Regents. After she resigned, the position went to DeWitt F. Bowman (former chief investment officer for the California Public Employees Retirement System) on an interim basis, and then to David H. Russ, who was hired in 2001 at a salary of $275K, which rose to $325K (gross pay) by the time he retired in 2006. David Russ was succeeded in the position by Marie N. Berggren, the current Treasurer and CIO. And this is where things get a little strange: Berggren was hired at an initial base salary of $375K, which however rose to $470K by 2008, with extra pay of $340K for total compensation of $810K.

Why did Berggren's compensation almost double between 2006 and 2008? Was it because of the stellar performance of UCRP funds (which led to the resumption of employee contributions?) Was it because of her participation in the the UC Treasurer's Office Incentive Plan?

One wrinkle in all this is the potential conflict of interest involving Mercer: as evidenced here, the firm acts both as consultant as regards the Treasurer's Annual Incentive Plan (AIP) and as general investment consultant. It seems likely that Berggren's outlandish raises were recommended by the very same firm that was later hired to oversee the University's investments. Note that Mercer's appointment in this latter capacity was enacted in a closed meeting of the Regents in September 2008, at which the newly appointed President Yudof was also present. One wonders, how long did it take Yudof to smell the stench and decide to along with it?

Yudof's address to the Regents

The UC Regents met yesterday, Sept. 16, to discuss the proposed increase in fees for undergraduate students at the University. After a bit of bru-ha-ha, the meeting could get down to business, beginning with Yudof's address to the Regents (the videos can be found here, here and here).

This was a passionate plea by Yudof to the Regents, and again one that is worth a close look for the information it provides on the direction where the University is headed. Yudof began by painting a rather bleak picture: the worst is far from over, the state budget will not improve next year, federal stimulus money will go away, all the while the university has to deal with an "unreliable partner," viz., a "dysfunctional state government."

Having thus described the situation, Yudof then proceeded to articulate his argument, whose first premise is that we shold give up "faith-based budgeting," i.e., coping with the present situation hoping that things will get better. Things will not get better, the State will not provide more money for the University (for a number of complex but well known reasons). We have to face the "unhappy truths;" we can, and should go to Sacramento for more money, but we should be aware that the State has no more money to give.

The second premise of Yudof's argument is that "mediocrity is the greatest enemy of the UC." We must do everything we can to preserve quality. From these two premises it follows that we must increase our reliance on the only other source of revenue that is available to the University, and increase student fees. Students must realize that the State "stopped building freeways to higher education" and is now "building toll-roads."

This is the main argument. Are there alternative solutions? Yudof does not think so: he denied that there were administrative raises, denied that there were "unrestricted" or "reserve" funds in the budget (and even if there were, say at the Medical Centers — and he's not saying there are —it would "wrong" and perhaps "illegal" to use them), blamed the union's (and especially AFSCME's) unwillingness to negotiate for the layoffs.

The fee increases are necassary, according to Yudof, in order to "stop the decline of the academic program" at the University, prevent a brain drain at the UC, and "do away with the furloughs" as of next summer (a connection that has the added benefit. obviously, to divide the faculty and the students).

Pres. Yudof ended reminding the Regents of the Blue and Gold Program, allowing any student whose family earns less than $60K to attend UC for free, the fact that 30% of the increase returns to aid, and the very high proportion of student on Pell Grants, the highest of any research university.

Yudof's vision is clear and, if we accept the two main premises of his argument, his plan is rational and compelling. The details of his plan have, of course, been poorly executed, but that is a different story. The Pitts memos, for instance, were blunders of historic proportions: if UCOP had received the Senate's recommendations we would not probably be here considering an unprecedented faculty walkout on the first day of classes, and in fact nobody would be surprised if Larry Pitts were at some point scapegoated for this. The administrative raises, that were (contrary to Yudof's claims) real and documented, were very bad optics, even if inconsequential in the $20B budget of the University. And the decision to protect the revenue-generating units at UC, first and foremost the five Medical Centers, even it meant gutting the core campuses, could have probably been avoided or mitigated. But these are matters that concerns the implementation of plan, not the plan itself.

Yudof has been criticized as a "privitazer," but his views is not to turn UC into a private university, but into a true hybrid institution. As pointed out elsewhere on this blog, there are reasons to think that that goal might not be attainable, as hybrid istitutions are inherently unstable, but that is Yudof's vision. We can either accept that vision or reject at least one of Yudof's premises. Since preservation of quality at UC is a goal that we share, the only option on the table is to engage in political action to make sure that the State's priorities are reversed and its funding model radically altered. Not easy, but is there another way?

Bullshit

This is, of course, a technical term. Whereas lying presupposes some acknowledgment of — and perhaps even a certain regard for — the truth, bullshitting is only concerned with the effect of the given utterance on its recipient. The California Professor was reminded of the distinction by UC President Yudof's repeated justification of UCD Chancellor Katehi's $400K salary, which represents a 27% increase over her predecessor's. While defending the appointment, and not for the first time, Yudof has pointed out that Katehi is one of the nation's leading electrical engineers and has 16 patents.

Do you know how many people like that are in the UC System? What about people with thirty-two patents — should their salary be $800K? (That would — I shudder at the thought — begin approaching the salary of the UC President). What about Nobel laureates and other world-renown faculty at UC?

The truth is that Yudof's argument is totally bogus — in a word, bullshit. It is of course true that Katehi is a respected scientist, barely tainted by the Illinois admissions scandal. But the scientific credentials have nothing to do with her appointment at UCD, which is just another instance of executive compensation run amok.

More pain down the road

UC President Mark Yudof warned of more cuts coming next year, when federal stimulus money runs out, with a predicted shortfall of about $600M (this year's cuts for UC amounted to about $800M). President Yudof also indicated the need for the State to start paying for Higher Ed perhaps through higher taxes or live with a "crummy university." Yudof did not specify which taxes he had in mind a refused to endorse an oil severance tax to fund Higher Ed in California the way a similar tax is used in Texas, for instance. Yudof also defended excutive compensaton practices at UC against state Sen. Leland Yee's (D-San Francisco) plan to cap salaries for UC's top brass. UC Chancellors, according to Yudof, already make $200K less per year than administrators at similar univeristies across the country. Funny how the salary lag at UC appears to be a big problem when it affects senior administrators but it is hardly mentioned for faculty and staff.

As reported in a different news item, beside again defending salaries of the top brass, including Davis's new chancellor, Yudof also warned UC unions to approve the furloughs or face layoffs.