Negotiating great deals for higher ed leaders

Some differences between first-time and renewal contracts for college and university presidents
By: | Issue: August, 2018
July 13, 2018

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As an executive compensation attorney, I represent college and university presidents in their contract negotiations.

As I have written in the pages of University Business and elsewhere, for a prospective president to “do it yourself”—or to be represented by an attorney without experience in the academic arena—almost always results in a presidential contract which is seriously flawed.

In our experience, there are important differences between the contractual arrangements offered to a presidential candidate who will be serving a first term at a particular institution, and those which can be negotiated for a sitting president whose value and worth has already been tested.

This is as you would expect: Once a president is a “proven product,” boards of trustees are usually eager to retain their services, and often are willing to consider a variety of creative ways to enhance such contractual terms as the president’s compensation and other entitlements.

Similarly, prospective presidents on the threshold of their first contract—particularly a first-timer who has previously served as dean, provost or even administrator of a for-profit institution—should be looking for different contractual terms and protections.

Here are some meaningful negotiating differences.

Security is the key

Unfortunately, a first-time college or university president often contacts an executive employment lawyer for legal representation only after the school has made an offer—and sometimes even after the terms of compensation have been tendered and accepted by the candidate.

Thus, although there still may be some compensation terms to be negotiated (e.g., sign-on bonus, performance bonus, deferred compensation), the most important compensation term—the president’s base salary—may be “set in stone” or at least not open to any real negotiation.

For example, if after a full search, the board of trustees has decided to offer the first-time president a base annual salary of $400,000, no lawyer is going to be able to persuade the board that the new president actually deserves twice that amount.

Other “back-end” compensation items may be more negotiable, even for a first-time president, but let’s shift the focus, because more money may not address the most essential issues in someone’s first presidential contract.

It is far more important to make certain that someone’s first presidential contract contains some of the protections that executive compensation lawyers are adept at building into these deals. A college or university, even after a comprehensive national search, hires a new president on a hope and a prayer.

All the qualifications in the world—academic credentials, success as a dean or a provost at another institution—do not guarantee that a new president will fit into the culture of a campus or succeed at fundraising while managing an institution’s particular constituencies.

A candidate who has already held a presidency at another university may have a greater likelihood of success in the same role at a new school, but there are never any guarantees.

So, what happens if things just don’t work out through no particular fault of the new president or the school? If the first-term president’s executive employment attorneys have done their job, the contract will contain adequate security to cushion an unexpected fall:

  • severance sufficient in both amount and length—given the rhythm of the academic year and the timing of presidential searches—to enable the president to look for another position
  • a meaningful bridge, to the next job, of health and other benefits
  • adequate time to vacate the presidential residence, as well as moving expenses (which are not inexpensive if the president has come from a distant state or country)
  • and so-called “retreat rights” to a tenured faculty position at a predetermined salary, which assure the president of a backup job—a particularly necessary consideration when the president’s ouster is more political than performance-based.

These sorts of protections may turn out to be more important than the compensation terms in the contract of a first-term president.

Be warned, however, that every president’s situation is different and requires unique legal attention.

Renewal contracts: A different focus

By contrast, when a president’s contract is up for renewal, a different set of assumptions govern. Now, the president is no longer an untried and unknown commodity; they have been sufficiently successful that the board is eager to extend the president’s term.

One noted and widely experienced academic consultant believes that “there is nothing a board likes better than to do a talent search,” paid for by the institution. Accordingly, any first-term president who is not believed to be of genuine benefit to the particular college or university is likely to be replaced.

Thus, the position of the president whose contract is going to be renewed is quite different from that of a first-term president.

Now, as the focus shifts from job security to increased compensation and eventual retirement, the renewal contract can add important enhancements to a sitting president’s compensation package, such as:

  • It can increase the president’s base compensation past the mean and the median of other presidents in the institution’s peer group
  • It can provide for several types of bonuses (on signing, for annual achievement and/or for benchmark performance accomplishments, such as a completion of a major capital campaign)
  • It can create or improve a deferred compensation plan, utilizing several sections of the tax code (e.g., 403(b) matches, 457(b) yearly contributions, one or more 457(f) or SRP plans).

These tranches of deferred compensation, if properly structured, will add up over the renewal term or terms, grow tax-free and provide the president a meaningful payday on retirement.

Boards of trustees generally like to reward a successful sitting president by thoughtful accretions to compensation by way of these deferred amounts.

First, such deferrals are easier on the “optics” and are not as heavily scrutinized as are salary increases. Second, such a program of yearly deferrals, which vest only at the end of the renewal term (or on death, disability or termination without cause), act like “golden handcuffs”—a powerful incentive to tie the president to the school until the renewal term expires.

And these are just some of the changes and improvements that the president’s executive compensation lawyer can negotiate in the president’s contract for a renewal term.

A renewal contract can “fix” or improve smaller, but not insignificant, aspects of legal language that even a careful executive employment attorney could not have averted in the president’s first contract.

Those earlier agreements are often entered into under pressure from a board’s determination to make an immediate public announcement that a new president has been chosen.

The higher ed press is full of stories about the ever-shrinking (and aging) pool of talent that even the top schools must select from to fill higher eds most demanding leadership roles.

The women and men selected to head America’s colleges and universities are literally required to put their private lives on hold in order to attend to a barrage of pressing needs and problems, from full-time fundraising to student unrest.

These presidents deserve contracts that make their lives easier by providing them with both security and meaningful compensation for their sacrifices.

George Birnbaum is New York-based attorney specializing in the academic, finance and media sectors.