Bank CEOs and University Presidents: What's the Difference?

Some say university presidents should get salary caps along with their federal funds.


There's some noise this week about the salary caps for some TARP-taking bank executives, and the non-capped salaries of university presidents, who often make more than the $500,000 limit placed on bank execs, and are often running institutions reliant on taxpayer funds.

The comparison appears to have first been made by the authors of a commentary for the John William Pope Center for Higher Education Policy. Ball State University professors Clarence Deitsch and T. Norman Van Cott pointed to the over-$500,000 compensation packages for many presidents of large public research universities and research-intensive private universities and asked: "Higher education has long occupied the role of scold, with its de facto CEOs being the high priests and priestesses of rebuke toward the business sector. ... The priests and priestesses have been ensnared in their own words. Have any offered to drop membership in their $500,000 plus club?"

Blogger Tigerhawk asks: "If the CEOs of banks that take federal money, including those who took federal money only after Hank Paulson essentially ordered them, have their salary capped at $500,000, under what principle do we allow universities that request federal funding to pay their own presidents much more money?" And Megan McArdle tries to find a rationale for the differing policies and notes that: "universities are in a mental basket along with investment banking: services that seem to cost too much for no good reason."

It seems like an interesting question, but one of McArdle's commenters doesn't think so: "How about: The banks in question were complicit in bringing about the current crisis."

Another commenter makes this worthwhile point:

Federal funding for research amounts to the taxpayers buying a service from the universities. We could argue about the value of that service, but that's the essence of the relationship. This relationship has existed for many decades - it has not suddenly been sprung on the taxpayers - and the costs are quite small compared to TARP. By most measures, the U.S. research enterprise is highly productive, brings great returns to the economy over time, and is the envy of the world. So what is the logic for penalizing the CEOs of these enterprises?

Why are we capping TARP exec salaries? Is it because they messed up so considerably they need our money, or because any institution that takes our money ought not to be so profligate? 

President Obama said this in announcing the pay caps:

This is America. We don't disparage wealth. We don't begrudge anybody for achieving success. And we believe that success should be rewarded. But what gets people upset - and rightfully so - are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers.

For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste - it's a bad strategy - and I will not tolerate it as President. We're going to be demanding some restraint in exchange for federal aid - so that when firms seek new federal dollars, we won't find them up to the same old tricks.

That sounds more like the first--it's a consequence of messing up.


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