Pricey Maladies Afflict California Universities

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Recent cases in Indonesia raised fears that the bird flu virus had finally mutated, allowing human-to-human transmission, a development that could trigger a devastating global pandemic.


Fortunately, it turned out to be a false alarm.


However, lurking in the shadows is another fast-moving disease, positioned to be just as harmful to our economic health and well-being. Signs abound that this new scourge has already mutated and become highly contagious.


Simply put, some of our universities have caught the twin diseases of “compensation-itis” and “contract-itis” from their public corporation brethren.


Here are some of the symptoms of “compensation-itis” recently discovered in the UC system:


– Make frequent exceptions to your compensation policy for a select group of key employees;


– Report only salary expenses and omit additional hundreds of millions of taxpayer dollars spent for such things as bonuses and housing and auto allowances;


– Impede effective oversight by not insisting on consistent classification of compensation and funding sources across campuses;


– Take a “mistakes-were-made” attitude when numerous irregularities are reported and promise future reforms while holding no one accountable. After all, if corporate America can get away with flawed compensation practices, why shouldn’t the same lax standards apply in the public domain as well?


When UC San Diego discovered it had overpaid a dean by $130,000, news reports showed that the university “decided not to ask for repayment because they did not wish to ‘penalize’ the dean for the campus’ errors.” So it’s OK to penalize the taxpayers instead?


To get a star provost, University of California administrators boosted the pay 41% above the prior provost’s salary in addition to a non-disclosed $125,000 housing allowance. Later that star provost resigned during a conflict-of-interest investigation.


Think this is fantasy? This information comes out of a California state audit of compensation practices in the University of California system located at http://www.bsa.ca.gov and recent news reports by the San Francisco Chronicle, the Los Angeles Times, and the Los Angeles Daily News.


The CSU system shows symptoms of a sister disease of “compensation-itis,” called “contract-itis.” That’s where a few already very highly paid former employees receive cozy contract terms that raise troubling questions about how such contracts were awarded and why. This blatant favoritism for a select few at the top may lead to questions about whether those who agreed to such favorable contract terms were fulfilling their fiduciary responsibility to put the interests of the taxpaying public first, above all else.


CSU recently announced that Barry Munitz, a former CSU Chancellor, has returned to the CSU system after an eight-year absence, during which he was the president of the J. Paul Getty Trust Foundation. Munitz’s first-year salary as a CSU “trustee professor” is $163,776, after which he will be paid the maximum yearly rate for a full professor, $112,548 (in addition to very generous health care and retirement benefits at the taxpayers expense). No mention is made of the news reports and subsequent investigation of questionable expense reimbursements Munitz received while president of the Getty Trust that led to his resignation, nor the criminal indictment of a former Getty employee for allegedly acquiring stolen artifacts for the Getty while Munitz was at the helm.


All this is occurring against a backdrop of rising student tuition and fees at a time when education has never been more crucial to our ability to compete in today’s and tomorrow’s bruising global economic competition.


Reports in the New York Times and the Washington Post would suggest that some private universities have also caught “compensation-itis.” Boston University trustees gave the school’s former president, John R. Silber, a $6.1 million payout two years after he left the top spot, including a $770,000 “bonus” of an extra year’s salary for every five year’s worked (and he worked 32 years). Last fall, the president of American University, Ben Ladner, was terminated amid allegations that he used university funds to pay for a personal chef, European vacations, presents for his children, an engagement party for his son and $200,000 for home improvements. A yearly salary of $633,000 and free housing was not enough? No wonder Congress and the IRS have stepped up their scrutiny of pay practices at private universities, wielding the IRS financial club of possible revocation of the private university’s nonprofit status.


Where public universities are concerned, don’t be surprised if students, parents, and taxpayers become angry voters who insist on a Sarbanes-Oxley-type antidote to eradicate these twin compensation diseases. If that happens, Bernie Ebbers and Dennis Kozlowski of Worldcom and Tyco fame should move over and make room for their new cellmates public university administrators.



Linnea McCord is an Associate Professor of Business Law at the Graziadio School of Business & Management, Pepperdine University.

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