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College executive pay and the allure of college endowments

college-building-with-tree-2The Chronicle of Higher Education released its annual survey today detailing college presidential pay. Among the findings: 15 presidents of public universities earned at least $700,000 last year, and nearly one-third earned over $500,000. According to one Washington D.C. lawyer familiar with college presidential compensation, the governing boards who set compensation often view the investment in a CEO as the single most cost-effective investment they can make, particularly during tough economic times, when, they say, retaining top talent is even more critical.

That may be so, but that reasoning doesn’t sit well with Senator Charles Grassley, a Republican from Iowa and a ranking member of the Senate Finance Committee, who states: “The Chronicle’s study shows that the executive suite seems insulated from budget crunches. In these hard economic times, apparently belt-tightening is for families and students, not university presidents.”

His views don’t bode well for colleges. Senator Grassley has been behind the push to force colleges to spend more of their endowments–up to 5% per year–putting them on par with private foundations. Last month, in response to Senator Grassley’s inquiries into whether colleges deserve their non-profit tax-exempt status, the IRS mailed out questionnaires to 400 colleges to gather information on everything from how much money top college officials get paid to the profits colleges make from side businesses. You can bet colleges are carefully crafting their answers.

The results of the survey won’t be available until next year. But as Washington seeks ways to pay for the bailout, reduce the federal deficit, and placate parents and students who claim that college is unaffordable, college endowments might look like a big pot of untaxed gold at the end of the rainbow, despite the college lobbyists who are arguing otherwise.

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