Vol. 34: What’s worse than an overpaid chief executive?
Lessons from Penn, Harvard, Temple, public TV— and Ben & Jerry’s
Amy Gutmann, recently departed president of the University of Pennsylvania, was one of America’s highest-paid college administrators. Her final base salary (in 2021) was $1.56 million, plus a $1 million bonus. When she stepped down in 2022 to become U.S. ambassador to Germany, her final payout— consisting largely of deferred compensation accrued over her 18-year tenure— came to nearly $23 million. And as a parting gift, Penn gave her a nearly-zero-interest home loan of $3.7 million to ease her “presidential transition,” according to the chairman of Penn’s trustees.
You have a problem with that?
Many people do. We live in a time of widespread public anger over the exorbitant compensations paid to corporate and not-for-profit chief executives alike.
“There’s well compensated and then there’s obscene,” Penn education professor Jonathan Zimmerman typically reacted to the news of Gutmann’s payout. “Couldn’t that $3.7 million have been put to a more honorable use?” wrote a Penn alumna to the Philadelphia Inquirer.
Such outraged reactions may be obvious and in many cases justified. But I’m more comfortable with the less overheated but to my mind more sensible mantra of the late Philadelphia entrepreneur Jack Farber, a self-styled “corporate garbage man” who spent more than 40 years acquiring failing companies, repairing them, and then selling them off.
“A recurring theme of my own career as a corporate recycler is the critical importance of finding and keeping a good chief executive,” Farber wrote in his 2012 memoir, The Garbage Man (on which I collaborated). “The right manager can save a company; the wrong manager can ruin it. From that perspective, a chief executive amply deserves to be richly rewarded— if he or she is the right person for the job and achieves the goals.”
Big salary, little product
Farber’s observation strikes me as even more valid at not-for-profit institutions. At least in theory, a corporate CEO must answer to stockholders who have a financial incentive to hold him/her accountable because their life’s savings may be at stake. But a not-for-profit institution— a university, say, or an orchestra, museum, or hospital— lacks investors with capital at risk, so its trustees feel little incentive to demand performance from the CEO. That’s why, too often, not-for-profit boards are peopled by otherwise high-powered trustees who "check their brains at the door."
Consider, for example, WHYY, Philadelphia’s public broadcaster. Bill Marrazzo, its president and CEO since 1997, is one of the highest-paid executives in public broadcasting (he got $740,540 last year), even though WHYY generates very little original programming. (WHYY radio’s well known interview show Fresh Air, hosted by Terry Gross, and Radio Times, hosted by Marty Moss-Coane, both predate Marrazzo’s arrival.)
Instead of impelling Marrazzo to provide a quality alternative to commercial radio and TV— which was, after all, the original justification for public broadcasting— WHYY’s board at first compensated him according to what its chairman proudly described as “a very specific set of metrics . . . things like increasing audience share, converting to digital technology, and bringing the budget into line.” As a result, Marrazzo proved himself a superb fund-raiser who delivered balanced budgets year after year, but WHYY drew its programming mostly from other stations: “Antiques Roadshow,” “American Experience,” BBC News, PBS News Hour— you get the idea.
In 2017, WHYY’s board revised Marrazzo’s compensation “with the help of a consultant who creates an index of pay at public media organizations, nonprofit educational institutions, and cultural organizations in the Philadelphia region, such as the Philadelphia Museum of Art and the Philadelphia Orchestra.” Once again, the board abdicated its responsibility to ask the critical question: “To what purpose?”
Academia vs. baseball
But to my mind, such problems of not-for-profit leadership pale by comparison to the challenge of running universities, which not only lack investors with money at stake but also abound in highly articulate and independent-minded faculty members whose tenured jobs are protected for life, not to mention wealthy emotionally-connected alumni who believe their donations entitle them to influence campus policies despite their utter lack of educational credentials. You know the old joke: Campus politics are so vicious because the stakes are so small.
After three years as president of Harvard, Neil Rudenstine took a three-month medical leave in 1994 because his doctors said he was suffering from “severe fatigue and exhaustion,” a polite phrase for a nervous breakdown. Rudenstine’s successor, the former U.S. Treasury Secretary Lawrence Summers— aka The World’s Smartest Man— lasted just five years at Harvard, having alienated many star professors with his deliberately provocative criticisms. (Apparently, nobody told Summers that if you’re the World’s Smartest Man, you shouldn’t constantly remind people that you’re the World’s Smartest Man.) Bartlett Giamatti quit the presidency of Yale in 1986 to become commissioner of Major League Baseball; when stunned observers asked how on Earth he could give up academia for baseball, Giamatti replied: “In baseball, you’re dealing with a higher class of people.”
Temple’s revolving door
By contrast, Amy Gutmann seemed to constantly recharge her school’s batteries as well as her own during her 18 years at Penn. In the process, she raised more than $10 billion, quintupled Penn’s endowment, added a 24-acre sports park and a 23-acre “Pennovation Center,” and helped foster a major biomedical cancer research breakthrough, all while steering Penn through a recession and a Covid pandemic and maintaining a public face as a seemingly inexhaustible cheerleader for her school.
Gutmann can be faulted for failing to perceive that accepting a $3.7 million loan atop all her other benefits would fail most people’s “smell test.” She should have told Penn’s trustees: “This loan won’t look good for me, or for the university.”
But that’s a minor quibble. When I was a Penn undergrad in the ’60s, Penn was never ranked higher than sixth academically among the eight Ivy League schools; in 2019, 15 years after Gutmann arrived, Penn was ranked fourth in the nation, not to mention fourth in the Reuters annual list of Top Innovative Universities in the world. How much is such a transformation worth?
Meanwhile, across town in Philadelphia, Temple University has suffered a 23% drop in student enrollment since 2017, tens of millions in budget cuts, a strike by graduate students, two fatal shootings on campus, and what this month’s Philadelphia Magazine rightly calls “a revolving door of mismanagement.” Temple’s latest president, Jason Wingard, resigned in March after just 20 months in office. Assuming Temple can find a successor, by next year, Temple will be on its sixth president in 24 years. If Temple could hire a CEO like Amy Gutmann to turn the place around, would he/she be worth a million-dollar salary plus other perks? To ask the question is to answer it.
Ben & Jerry’s dubious solution
Back in the early ’90s, the progressive-minded ice cream maker Ben & Jerry's addressed the problem of excessive executive compensation head-on by capping the pay of its highest salaried executive at five times the pay of its lowest-earning-worker. When it turned out to be difficult to attract top-level managers for just $75,000 a year, Ben & Jerry’s raised the ratio to 7 to 1. But when Ben Cohen retired as CEO in 1994 and nobody applied for his job under those conditions, Ben & Jerry’s adjusted the pay ratio to 17:1 and subsequently abandoned the ratio altogether. In 2000— just six years after Cohen retired— Ben & Jerry’s was acquired by Unilever, whose chief executive is now paid the euro equivalent of about $2 million. Had the original 5:1 ratio remained in effect today, a Ben & Jerry’s ice cream scooper could be making $400,00 a year, assuming the company could survive (which it didn’t).
When I was at the Wall Street Journal in the late ’60s, the paper liked to boast that every president of its parent company had started out as a Journal reporter. Since journalists by temperament tend to be spectators rather than players, most Dow Jones CEO’s tended to be better custodians than visionaries. But that Journal policy— like Ben & Jerry’s pay ratio— worked as long as the primary key to the company’s success was the quality of its product: news. Then the world changed— specifically, the patient members of the controlling Bancroft family gave way to an impatient younger generation preoccupied with maximizing the return on their inheritance. That’s how a journalistic jewel like the Wall Street Journal wound up the greedy hands of Rupert Murdoch.
Managers and leaders
By the same token, America’s first colleges in their early years were all run by the chief academic officer: the provost. (Penn, founded in 1751, didn’t have a president at all until 1931.) These days, of course, college chiefs have other priorities than academics. A Penn trustee I know once asked Amy Gutmann’s predecessor, Judith Rodin, how much of her time was devoted to fund-raising. Was it 30%? 40%? “90%,” Rodin replied.
When it comes to recruiting key executives, the late Washington sage John W. Gardner once observed, there are only two qualities for which an organization should be willing to pay almost any price: taste and judgment. “Almost everything else can be bought by the yard,” Gardner argued.
I would put it another way. There’s a difference between managers and leaders. (Joe Biden, to judge from his low current poll numbers despite his achievements as president, is more of a manager than a leader.) And large organizations, like the world, change imperceptibly every day. In that case, a leader who can make a positive difference is worth almost any price— certainly at least five times as much as the loyal ice cream mixer at Ben & Jerry’s. I speak from experience as someone who’s run a few organizations and was never very good at it.
Enjoy Dan Rottenberg’s new memoir, The Education of a Journalist: My Seventy Years on the Frontiers of Free Speech. You can also visit his website at www.danrottenberg.com
From reader Willard B. Snyder:
So, now the question is: Where do you find someone with the vision, imagination, and the ability to convince the trustees of their vision?
As always, a great read but as I read it, I began to think you're a Gemini (like me) of two minds. (And indeed you are.)
On one hand, BIG salaries are obscene. On the other hand, what we see as being obscene is, like prostitution, defined by the price (and the return value). If we receive enough, we're not prostituing ourselves, only establishing the value of our talents.
How do we determine value? Is it determined by how the market determines the value of the product? Or is it determined by the quality of the work done to produce the work...no matter what the market value is? (A Van Gogh painting when produced or a Van Gogh painting on sale today?)
And then I am reminded of Lear's lament on the Heath: "O! reason not the need. Our basest beggars/Are in the poorest things superfluous." No doubt, every CEO/President/Writer/Poet/Professor know that they are worth one dollar more.
Farber may be right that the "right" salary "is of critical importance of [sic] finding and keeping a good chief executive." But how does a payout of $3.7 million (nearly interest free loan) plus her bonuses serve to "keep" her or help Penn? "Easing her 'presidential transition'? Indeed!
Exits are always tricky businesses. But they, often as not, define us.