Not Biting the Hand That Feeds Them:
Academe’s Deafening Silence on Runaway Pay

“Yale President Richard Levin could have been in investment banking, he could have been in venture capital, he could have run a corporation. Obviously, if he’d gone into other fields, the compensation would be orders of magnitude greater.”

–John Pepper, Yale compensation committee; “Yale Give Former Leader $8.5 Million Payout“; The WSJ (5/20/15)

Mr. Pepper is exactly correct:  Richard Levin could have made vastly more money in fields like investment banking and venture capital today.

Richard_LevinThat’s a separate, even more unsavory story.

But, he didn’t.

Levin chose academe.

Now, instead of preeminent University presidents and professors (especially in finance-related subjects) challenging the cancer of exorbitant pay running rampant today, they’ve clearly figured out how to cash in on it.

Not Biting the Hand That Feeds Them

One of the most shocking revelations in Charles Ferguson’s superb 2010 documentary, “Inside Job,” was the extent to which senior leaders and faculty at the nation’s premiere business schools and universities were — are — financially beholden to Wall Street.

Wall Street endows their academic chairs (“John Doe, the Goldman Sachs Professor of Finance at ABC School of Business”).

It pays them handsome consulting fees (Harvard’s Lawrence Summers; Columbia’s Glenn Hubbard).

hand_biteAnd Wall Street places dozens of such folks on lucrative corporate boards, whose own executive compensation committees have been busy rubber-stamping a 20-fold leap in top salaries in less than a generation.

(Wanna guess who sets top CEO compensation?  Their peers — with intellectual cover from the compensation consultants they hire and very generously pay).

It’s basic human nature not to bite the hand that feeds you.

These days, leading academics such as Yale’s Richard Levin — and a growing (and disturbing) number of his colleagues — are clearly very well-fed, indeed.

“Sunlight, the Best Disinfectant” (& Other Quaint Myths) 

Unfortunately, efforts to combat the pay scourge simply by shining a spotlight on it have failed.

Advocates of such an approach underestimated how proponents of grandiose pay could obscure or avoid scrutiny (Levin’s severance pay came to light more than 2 years after the fact, and only because it was disclosed in Yale’s latest tax return, filed May 15).

Or misdirect it.

Or employ the “hiding in plain sight” tack:  executive pay is arguably so munificent and complex now that no one can effectively track it.

Of course, the best defense is a good offense:  the most vociferous defenders of over-the-top pay argue that it’s well-deserved (the recipients are “job creators”), and, at any rate, due to market forces.

If that’s so, how about firing all those compensation consultants, and purging boards of directors of fellow CEO’s?

Political Spillover

It if it all sounds sickeningly familiar, it’s because the architects of modern campaign finance have employed just such a strategy to tuitionfacilitate today’s big-buck elections (buttressed, of course, by friendly Supreme Court rulings).

As the saying goes, “real power cannot be given, it must be taken.”

The sample principle seemingly applies to today’s exorbitant compensation.

At least for now, it appears, the sky’s the limit.

P.S.:  How long before people (quite reasonably) ask, “if universities — including leading public institutions — can afford to lavish millions on compensation, how come they don’t have to remit anything to the government??” (as non-profits, they pay no tax).

Question #2:  might there be a link between such compensation and skyrocketing tuition?

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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