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The process of establishing presidential compensation continues to be a complex and sometimes difficult process for many governing boards. As a follow-up to The 2014 AGB Survey of Higher Education Governance, in which we asked boards about their basic practices for establishing presidential compensation, this month’s Quick Governance Survey takes a deeper look at this issue.
Compensation Philosophy Statement
As a matter of best practice, all boards should have a compensation philosophy statement, a document that outlines the guiding principles and decision-making processes for establishing compensation. However, across all sectors, most respondents reported that their boards have not adopted such a statement. Approximately, 74 percent of publics and 69 percent of independents indicated that they did not. Over half (57 percent) of proprietary institutions do not.
Role of the Full Board
Full board approval of presidential compensation, though a recommended best practice for all boards, greatly varies by sector. While 78 percent of boards from public institutions report that the entire board actively engages in discussions about the proposed recommendations for compensation (including the types and amount) and approves the final package, only 39 percent of independents and 29 percent of proprietary institutions do so.
There are several important legal considerations that boards should be aware of when establishing compensation packages. For independent institutions in particular, intermediate sanctions (a tax penalty) can be enforced for any entity or individual that knowingly approves and/or receives an "excessive" compensation package as determined by the IRS. When asked whether their board members are aware of such policies, only 15 percent of all respondents from independent institutions indicated that their board members were very much aware of these sanctions. Over half (58 percent) reported that their board was only somewhat aware or not aware at all.
About the Survey
The survey was posted on the AGB blog and sent electronically to presidents and board chairs of AGB member universities, colleges, and systems. A total of 233 respondents completed the survey. Of those that did, 71 percent represented independent institutions, 23 percent were from public institutions or systems, and 6 percent were from proprietary institutions.