The Last $5M Payday?

Brandeis University paid its former president, Jehuda Reinharz, $4.9 million on Jan. 2, three weeks before it announced an overhaul of its executive compensation policies.

Reinharz, who quit his post as one of the nation’s highest-paid college presidents in 2010 on a sour note, gradually won the payout through deferred compensation over his 17 years as president. This month’s massive payment — perhaps one of the largest ever by a nonprofit to an individual – included $4.1 million in deferred compensation and $811,000 for untaken sabbatical.

Brandeis’s new compensation policies, announced last week at the same time as Reinharz's payment, are designed to assuage campus outrage and perhaps prevent this from happening again. The new policies are meant to encourage transparency and equity -- characteristics not associated with private college compensation packages -- and give Brandeis faculty unprecedented say regarding presidential pay.

Even before the exact sum was announced, local media had reported some smaller details of Reinharz’s post-presidency fortune. Those comparatively small amounts – $627,000 in salary and benefits in the 2011 tax year – had already prompted 1,600 students, parents, alumni and faculty to sign a petition expressing their shock and demanding changes.

“At a time of crisis, or at least perceived crisis, Jehuda cut classes, slashed salaries and laid off faculty and staff, but during that same time the people who run Brandeis saw no contradiction between him doing that and giving him tons of money – either they saw it was no contradiction or they checked out,” said Sahar Massachi, a recent graduate who started the petition.

Reinharz did not return an email seeking comment and asking him if he had any plans to return some of the money, as other university presidents have done when they've received payouts amid institutional hardship.

New Policies

In response to the outrage, Brandeis’s new policies put a faculty member on the board of trustees’ executive compensation committee. The university has also promised to announce salary and benefit changes for its highest-paid officials promptly. Normally, the public only finds out about the pay of private colleges presidents from nonprofit tax filings that come out a year or two after decisions have been made. The changes at Brandeis are unusual for a private college.

The university will also require its full board to look at compensation packages, which had not previously been the case. 

Senator Chuck Grassley, who has taken a keen interest in college officials’ salary and benefits, said that it's good to see Brandeis taking action after making one of the “biggest lump sum payments” he’s ever seen by a nonprofit, which receive generous tax exemptions.

"It’s surprising to see nonprofit employees paid like Wall Street bankers," Grassley, Republican of Iowa, said in a statement. "As Brandeis makes improvements, other colleges could and should follow the example, even though it seems like too little too late in this case."

Colleges often award deferred compensation to help presidents plan for their retirements and, through longevity bonuses, to encourage presidents to stay put. Usually, the university sets aside some money each year for the president to collect once he or she retires. Sometimes there are tax advantages to this system, and in some cases the size of the payments are tied to particular goals. Brandeis notes that all $4.1 million it paid for deferred compensation had been previously disclosed in annual tax filings. Less clear is what, if anything, Reinharz did to earn such a large sum. The university has noted that he led the institution for many years and was a successful fund-raiser.

Part of the angst comes from the timing, and some from the controversial end to Reinharz’s tenure as president.

The largest single deferred compensation award in the past decade, of $825,000, was granted in the 2009 tax year, which began amid the depths of the recession and only six months after Reinharz and the board announced a plan to sell the university’s fame Rose Art Museum. The proposal -- eventually withdrawn -- infuriated many faculty members and arts supporters, who were stunned that the university would sell off significant donated artworks to deal with a deficit for which administrators had failed to plan. A university spokeswoman said the large compensation award was set by a contract signed earlier.

Eric Chasalow, chairman of the Brandeis Faculty Senate, said faculty approached the new board of trustees chairman after details of Reinharz’s post-presidential benefits started to become public late last year.

Chasalow said that faculty were horrified by the pay, but that it was unfair to call Reinharz’s deal a “golden parachute” since much of the compensation was awarded long before Reinharz planned to leave.

A Faculty Voice

In part because of the uproar, Brandeis faculty have won a new right that those at few, if any, other private colleges can claim: a seat on the compensation committee.  That seat will allow faculty members to be in the loop and to put a president’s pay in context as the committee does its work.

"I know we have changed the way of doing business here,” Chasalow said.

Stephen Joel Trachtenberg, the president emeritus of George Washington University and a defender of generous pay for college executives, said he’s not sure if having “amateurs” on the compensation committee will be the best route for Brandeis.

Chasalow and others have argued that the Brandeis board members had tried to implement corporate bonus philosophy in a nonprofit institution; Trachtenberg said that’s the typical criticism of college boards. “I guess what we need is a board of poets, since we all know they barely make a living,” he quipped.

"I don’t know why they think they are going to get more wisdom through a collective, but obviously they do,” Trachtenberg said.

Current Brandeis President Frederick Lawrence, whose received $540,000 in salary and $24,000 in deferred compensation last year, said in a statement that he appreciated the new compensation policies.

“Our intention is that these changes will put Brandeis on the leading edge in terms of governance best practices,” he said.

The policy changes ensure that the full board sees all executive compensation agreements, where previously a small number of board members on the compensation committee could privately set the president’s salary.

Brian Vogel, a senior principal with the executive compensation firm Quatt Associates, said Brandeis’s new compensation philosophy is consistent with philosophies he sees at other major nonprofits.

“This is a good compensation philosophy that well-run institutions will commonly have,” he said. “So, I guess my feeling would be that any institution should have this philosophy – it should not be something the A.G. should force them to have.”

Brandeis’s policies were announced several weeks after the Massachusetts attorney general issued a report on nonprofit executive compensation that encouraged more transparency.

The state’s Office of the Attorney General made three main recommendations for Massachusetts’s nonprofits, which include some of the state’s largest employers and the nation’s most prestigious institutions. The attorney general said compensation committees should consider the “reasonableness” of compensation, the “relative magnitude” of a CEO’s compensation package compared to those of the rank-and-file, and the benefits that nonprofits receive in the form of tax exemptions.

Brandeis’s new philosophy says the university will consider what is in its own “best interests,” an executive’s responsibilities, whether the pay is consistent with “norms and best practices,” whether it is equitable within the university and what the pay does to the public’s confidence and the university’s reputation.

Chasalow said he approached the university asking for some of the measures it adopted before he learned about the attorney general’s report. A university spokeswoman said the university did expect the state to change its regulation of nonprofits, but Brandeis also planned to keep reviewing and updating its policies in years to come.

“The intent is to ensure that we are both in sync with what best practices are today but also forward looking,” the spokeswoman, Ellen de Graffenreid, said.

One of the changes also makes sure that people on campus have a better sense of the funds being paid to top administrators. Brandeis plans to “promptly” announce changes to presidential compensation. Usually, faculty – not to mention journalists – have to wade through the fine print of tax filings made a year or so after the fact to find out what a board has decided to pay a president.

Grassley, who has sought details about executive loans that New York University gives for vacation homes, said other nonprofit colleges should take similar steps.

“Brandeis appears to show universities are capable of going beyond the bare minimum of disclosure required of them,” he said. “I hope we’ll see more voluntary measures toward disclosure and accountability. Nonprofit compensation should be subject to scrutiny before and not after the fact, when it’s too late if anyone objects.” 

Massachi, the alumnus who started the petition, said transparency isn’t enough.

“The problems at Brandeis, just disclosure won’t solve anything on its own, just like disclosure of Wall Street bonuses doesn’t solve the problem of what they did to the economy,” he said.