SPRINGFIELD — Last August, the Illinois legislature passed the Government Severance Pay Act to curb a rash of expensive severance payouts for university presidents around the state.
The bill honed in on deals like the one given to Chicago State University president Thomas Calhoun Jr., who was paid two years’ salary, $600,000, to leave his post after just nine months in 2016 — the same year the school was forced to lay off about 40% of its employees due to financial troubles.
Or Doug Baker, who was given $617,500 to resign as president of Northern Illinois University in June of 2017, after a state ethics watchdog accused him of manipulating university hiring rules to award high-paying jobs without required competitive bidding.
In July 2018, former Southern Illinois University President Randy Dunn resigned early amid outcry over his covert attempts to separate SIU Carbondale from SIU Edwardsville, in exchange for a $215,000 payout, plus an 18-month teaching appointment at SIU Edwardsville worth $100,000 per year.
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In total, severance buyouts at Illinois public entities, from universities to the Metra commuter rail agency, have cost taxpayers more than $5.8 million over the last decade, according to the Better Government Association.
In many of the higher education cases, the university trustees who approved the severances have defended them as unsavory-but-necessary cost-savers.
When trustees at SIU announced their intention to remove Dunn, he took the position that the termination was without cause, remembers Judge Phil Gilbert, chairman of the SIU Board of Trustees.
Though Dunn’s actions had drawn media scrutiny and ire from some on the Carbondale campus, contractually that claim may have been defensible, trustees believed. At the time, Dunn had not faced any official censure for his actions.
If a court had agreed that the termination was without cause, Dunn’s contract would have entitled him to three years of his $430,000 annual salary — over $1.2 million total.
“We negotiated a $215,000 payout so there would be no litigation,” said Gilbert, a federal judge by profession. “Just cause has a lot of moving parts to it and what might be just cause to one person might not be to another. And when you consider the cost of litigation involving depositions, it very likely would’ve been much more than what we paid him to get him to leave, plus the publicity that would’ve adversely affected enrollment and recruitment of students and faculty.”
Months later, a report by the Illinois Office of Executive Inspector General would find Dunn at fault for improperly hiring multiple staff and administrators, triggering a contract provision that allowed the university to cancel Dunn’s promised teaching job.
But the payout, equivalent to half a year’s salary, could not be touched.
Now, with the passage of the Government Severance Pay Act, SB 3604, severances like Dunn’s, Baker’s and Calhoun’s are a thing of the past.
The bill limits all severance payments to public employees to a maximum of 20 weeks of their salary.
That means no more mega-lucrative wrongful termination contract clauses. And no more pressure on universities to choose a severance settlement or a legal battle.
The reform has put Illinois “ahead of the pack,” according to professors James H. Finkelstein and Judith Wilde of the Schar School of Policy and Government at George Mason University.
Together, Finkelstein and Wilde have reviewed over 300 university hiring contracts, to chronicle what Wilde calls “the CEO-ization of university presidency.”
“Less than 20 years ago, reviewing presidents’ contracts was pretty straightforward. They might get a salary, a provided car, a house and maybe an expense account,” Wilde said. “Now, contracts are becoming increasingly complex and more like a corporate CEO. We’re seeing lucrative bonus structures — signing bonuses, retention bonuses, performance bonuses, completion bonuses, merit bonuses ... as well as sophisticated deferred compensation agreements, borrowed from the corporate world.”
Meanwhile, the number of public university presidents earning over $1 million per year has risen significantly, and the pay gap between university leaders and even senior faculty remains large (a median ratio of 4.8 to 1 at Forbes’ top 25 public universities during 2018).
To blame, Finkelstein said, is a common belief that his research contests.
“People think, ‘We’ll give presidents more money with the expectation that they’ll do better,’” he said. “In fact, research shows paying corporate executives more money frequently does not have any relationship to how the corporation as a whole fares, and there’s no indication that university presidents’ compensation has any impact on their fundraising success.”
The ballooning of salaries, bonuses and severance benefits is exacerbated by other industry trends too, Finkelstein added.
To hire leaders, most universities now use executive-search firms who charge a percentage of the base salary of the employee they help recruit, giving them an incentive to bump up wages.
Meanwhile, university trustees have shorter average tenures than presidents, Finkelstein said, and can be inexperienced or underprepared for negotiations.
And lawmakers are increasingly filling university boards with high-level corporate employees, who may share the philosophy that higher paid executives perform better. In the corporate world, CEO pay rose nearly 1,000% between 1978 and 2014, according to the Economic Policy Institute.
Illinois is to be applauded, Finkelstein said, for tackling one important aspect of the problem.
But in a state that loses more high-schoolers to out-of-state colleges than nearly any other, some higher education leaders worry the new restrictions will further hamper Illinois’ ability to compete.
“I think the pendulum has swung to where taxpayers are fed up with paying these administrators big sums of money just to end up resigning,” Gilbert said. “But when you recruit people, you want to try to recruit the best, and sometimes the best are in a pretty strong bargaining position.”
Other trustees and lawmakers shared that concern at a hearing of the Illinois Senate Committee on Higher Education in late August.
Only two universities — Northern Illinois University and Northeastern Illinois University — have hired presidents under the new rules, which took effect on Jan. 1, 2019.
At NIU, the hiree was already the acting interim leader. At Northeastern Illinois University, severance compensation “was a challenging element of the negotiation,” a trustee told lawmakers at the August hearing.
SIU appears to be next up.
Since July of 2018, the school has been led by Interim President J. Kevin Dorsey, who was brought out of retirement to stabilize the president’s office after Dunn's ouster.
Now, the SIU Board of Trustees is working with the executive search firm Witt/Kiefer to install a new permanent system leader by Jan. 1.
CARBONDALE —Southern Illinois University, working in concert with the executive search firm Witt/Kiefer, has finalized its President Leadersh…
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The university will be “the test case” for the impact of the new hiring rules, said State Sen. Steve Stadelman at the August hearing, where legislators acknowledged legitimate concerns that the new rules could handcuff universities.
“It’ll be very interesting to see what’s going through SIU’s process,” agreed State Sen. Tom Cullerton, who sponsored the Government Severance Pay Act. “Their recruiting firm, it will be interesting to see from their viewpoint, how many applicants did they get and what was the quality?”
Cullerton doesn’t expect any problems, he added.
“This is a highly coveted job, and if you are in that level of management and success, going to be the president of one of our flagships, SIU, that’s a huge honor and a huge opportunity for somebody.” Cullerton said. “If your number one concern is your payout when you leave, then maybe you’re not the best person for the job.”
Early on, SIU’s search firm, Witt/Kiefer, did express concerns about the new law, Gilbert said. But it hasn’t reported any problems since things got underway.
“We’re getting good quality candidates, and we have not seen any indication that the new restrictions are hindering the candidates wishing to become president,” he said.
Wilde and Finkelstein hope other states will take Illinois’ reforms as a reminder that university presidents, village managers and public agency leaders are public employees, not corporate executives.
“The media must continue covering this issue, and citizens and state legislatures must ask questions and have public dialogue about: Why are we treating this one class of public employees so differently than anyone else?” Finkelstein said.
In recent years Illinois lawmakers have also tackled other elements of “CEO-ization.”
They put limits on presidential bonus packages with 2016’s SB2159, which requires Illinois university presidents and chancellors have their performance reviewed annually by their institution’s governing board, and stipulates that the reviews must be considered before the board gives any bonus or raise.
And with 2012’s HB5914, the state restricted the use of costly search firms, requiring universities provide specific justification if they intend to pay a talent scout to search for any rank lower than president.
Still, Wilde and Finkelstein said, there is room for improvement.
In recent years, university leaders have won big payouts in spite of severance laws by capitalizing on another contract perk.
The new leverage, Finkelstein said, comes from tenure.
Except where states prohibit the practice, most university presidents are contractually guaranteed lifetime tenure within their university when they step down, Finkelstein explained.
Often, presidents succeed in negotiating the tenure deals with a lighter-than-average course load and a higher salary than even senior faculty.
But if a presidency ends in severance, after allegations of misconduct, for instance, that cushy teaching deal becomes an immediate liability for an institution seeking to cut ties.
Even as severance payouts are being regulated, recent tenure buyouts have reached millions of dollars.
At Auburn University, President Steven Leath got such a deal, to the tune of $4.5 million, Wilde said. At Northern Illinois University, Baker’s $617,500 buyout saved the university and taxpayers over $200,000 a year for the rest of Baker’s life, as he relinquished his contractual right to teach in the College of Business.
“The universities are claiming they don’t consider these to be severance agreements. They say, ‘We’re buying out these individuals’ tenure rights,’” Finkelstein said.
He’d like to see states like Illinois take a closer look at when presidential tenure is truly merited.
“What governing boards are saying is ... we have to give tenure otherwise they won’t come,” Finkelstein said. “That may be true. It’s certainly been the practice across the country, but is it good public policy? There are no other public executives in any state that get tenure. ”
The deals look even worse in light of the reality that many presidents have been out of the classroom for years, Finklestein added, moving up the ranks of academic administration.
“You may not have the skill set to go back and be a productive faculty member or researcher,” he said. “Many of these contracts ... they become sinecures.”
Illinois does not currently restrict presidential tenure awards, though legislators on the Senate Higher Education Committee, like State Sen. Pat McGuire, have begun to hear about the issue.
Immediately, McGuire’s priority is improving trustee education, he said, to make sure all trustees are prepared for wide-ranging contract negotiations.
Current Illinois law requires public university trustees receive four hours of training every two years.
But the state only offers training at annual conferences organized by the Illinois Board of Higher Education.
“What bothers me is that there’s no opportunity for training on demand,” McGuire said. “Imagine a trustee is appointed in March and then in April is forced to help negotiate a severance or transition. That’s what I want to work on.”
Some Illinois universities have found ways to provide supplemental training for their trustees, McGuire said, but he’d like to see those opportunities extended to all.
“This might not necessarily come through legislation, but through resource sharing and best practices,” he said.
“I wouldn’t be surprised if some picked up from NIU and ISU their testimony of resources that their schools could use."
At SIU, trustees get an orientation from the board secretary and the university president as soon as they join, said system spokesman John Charles. They also attend the annual IBHE training.
A review of SIU Carbondale Interim Chancellor John Dunn’s contract showed it does not include tenure.
SIU Edwardsville Chancellor Randy Pembrook already held tenure at the rank of professor in SIUE’s Department of Music when he became chancellor. His contract includes those tenure rights, though it notes his salary must be “consistent with other members of the faculty with similar rank and experience,” if he returns to the department after his chancellorship.
SIU Interim President J. Kevin Dorsey already held tenure in the Department of Medical Education and Department of Internal Medicine of the SIU School of Medicine. He maintains the right to exercise that tenure after his presidential term ends.
A previous version of this story incorrectly quoted Professor James H. Finkelstein as describing some university presidents on lifetime tenured appointments as "cynosures." In fact, he described their jobs as "sinecures." The Southern regrets this error.