Executive Compensation in Public Higher Education: Does Performance Matter?

Abstract

Executive evaluation and compensation are central to organizational accountability and governance. Driven by increasing public demand on justifications and accountability for substantial salary increases for public university presidents, this paper is intended to shed light on the linkage between performance and executive compensation in public universities by examining the determinants of university presidents’ pay from 2004/2005 to 2008/2009 academic years. The central question is whether presidential compensation is related to a wide array of newly developed university performance measures or is independent of performance, i.e., university presidents are paid like bureaucrats in line with the widely supported conclusion in Jensen and Murphy (1990b) suggesting corporate CEOs are really paid like bureaucrats. Methodologically, Arellano–Bond dynamic panel model is applied to control for serial autocorrelation in the compensation data, i.e., university presidents’ pay in the current period is dependent to a great extent on that in the prior period. With extensive individual, institutional, and performance characteristics examined, it is concluded that performance related variables play a very limited role in determining public university presidents’ executive remuneration, when temporal autocorrelation is properly controlled, and presidential pay is strongly and persistently associated over time. The statistically insignificant pay-performance relationship together with the temporally persistent increases of presidential compensation may provide initial evidence supporting that public university presidents are paid like bureaucrats.