Friday, March 28, 2008

Say it ain't so

The University of California is facing huge shortfalls of money (and goodwill). So what did the regents of the University of California do? They hired a new president, and will pay him twice as much as the outgoing one.

Big sigh.

This is so wrong.

He is going to ask the faculty and staff for huge sacrifices. He is going to ask the students to pay ~10% more fees. How is he going to have the political capital to ask others to sacrifice, when he is pulling in on order of $800,000/year in salary and deferred compensation (pension)?

How is he going to get any money out of me (or any alumni) with a salary like that?

The UC search committee argue that this is only a 12% pay raise for him and that the UC system is larger than the UT system. But UT is partly funded by oil revenues. A friend who interviewed for a position there was shown the actual oil wells (which the above link says were decommissioned in 1990). But I digress.

Executive compensation is a hot button issue for me. The whole rationale is suspect.

One argument, which is made in this case, is that you have to pay top dollar in the competition for talent. So you take a survey of comparative pay and then you give the new hire above the going rate because he is better than average. Why else would you hire him, right?

But the people who determine the compensation tend to be in the same type of positions as the people they are hiring. So they will be on the receiving end of the largess some day. Your above average pay day will arrive shortly if you play the game right.

The second argument is that he will not be the highest paid UC employee. He will be out earned by several athletic coaches. Grrr. Is the UC a university or a farm team for pro sports? Enough said.

He will also be out earned by several medical school professors with clinical practices on the side. Compensation of medical providers is another hot button issue for me so let's not go there lest my blood pressure go even higher.

The UC system has historically been been led by a scientist or engineer who has risen from within the ranks. Yudof will be the first lawyer to head up the UC. Oh, that explains why he is worth so much more than the previous presidents. (Read the "aside" below.)

And let's not discuss why investment bankers need to be paid bigger bonuses in a bad year to keep them from jumping jobs. Or why hedge fund managers should enjoy an effective tax rate 1/3 of mine while earning 1000 times my salary because they are providing such a valuable service to society.

Let's Whip Inflation Now--starting with executive compensation.

Hopefully, the shortage of US citizens with Science, Technology, Engineering and Math (STEM) skills will result in an increase in my salary. Maybe I will make 1/900 as much as a hedge fund manager some day.

Links:
LAT story on his hiring
Contra Costa Times story
NYT on Executive compensation and backscratching
Internet Resource Guide for Executive Compensation (UCB's COHRE)

Aside:
A friend (and fellow mother) and I compared hours worked and salaries. In the last year she worked (she is one of those opt-out mothers that Linda Hirshman rails against), she earned more than ten times my full-time equivalent salary while working nearly twice as many hours as I do. I work 36 hours a week or 90% time. You do the math.

She earned a BS in science before going to law school. She paid her dues as an associate in a major law firm. We figure, that's equivalent to earning a PhD in science and doing a postdoc. She figures she is as smart as her scientist friends who stayed on the science track. Yet the paydays are so different. She will be the first one to admit that her work, helping rich people sue each other, is not as beneficial to society as science research (even mediocre science research which she figures does no harm, unlike the legal profession). Is it any wonder that an intelligent and thoughtful person would save up her enormous salary and quit at the first opportunity?

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