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Skin In The Game: Incentive pay and job performance in higher education

  • Post last modified:July 3, 2024

Image caption: In 2016, Daniels earned 96%, or $201,600 of his incentive pay. Purdue University continues to be highly ranked among Big10 and national public universities. Source: https://apnews.com/article/aa71d4eda4c6466799121c8e18678368

What happens when college presidents have a portion of their salary 'at risk'?

When the Penn State Board of Trustees hired Dr Neeli Bendapudi in May, 2022 as the 22nd president of the university, they gave her no performance metrics by which her efforts would be measured. To be fair, when Dr Barron was hired for the same job in 2014 he didn’t get any either. This may, or may not, have contributed to Penn State’s steep academic decline over the last decade, a $100 million annual operating deficit, and a multi-billion dollar increase in long-term debt. Would Dr Barron’s tenure have been more successful if the Board had established performance metrics congruent with Penn State’s core missions?

An answer might be found among our Big10 peers. Many of them seem to think it’s important that their presidents have at least a portion of their salaries ‘at risk’ and tied to measurable, achievable goals. Among our peers, Ohio State, Purdue, Indiana, and Rutgers include incentive pay in their performance review metrics, which ties a portion of presidential compensation levels to specific goals. Not surprisingly, all four schools have seen a significant increase in their rankings and performance over the same time frame Penn State has seen a dramatic drop.

In lieu of her employers providing performance evaluation metrics, Dr Bendapudi published her own, Presidential Vision and Goals: A Transformational Penn State Experience. Buzzwords aside, her rubric outlines laudable goals with an abundance of inspirational rhetoric. But with one exception, there are no measurable or quantifiable components to these aspirations, and she is at no risk of not receiving any portion of her $1.8 million pay package. President Bendapudi received no direction or consultation from the Board of Trustees in setting these ‘goals’, and they were approved with no deliberation at the July, 2023 Board of Trustees meeting. I voted NO.

Generally speaking, basic presidential performance criteria should have goals that are: congruent with the achievement of the institution’s most critical missions, clearly defined in measurable and quantitative ways, ambitious yet reasonable and attainable, and should fall within the authority of the party held responsible.

Writing a rubric like this is a lot of work for a board. But the work is valuable because it forces deliberation on exactly which missions are the most critical to the university and its stakeholders. Board members also have to understand, in clear and factual terms, exactly where the University currently stands relative to the achievement of those missions. Lastly, it requires the Board to monitor progress towards improving upon those missions and have hard discussions when things don’t go well.

That’s a lot of effort, but the dividends come quickly. Conversely, when boards don’t do the work, the results can be disappointing and chaotic.

Until such time as the Board decides to create its own performance-based compensation metrics, we only have the one Dr Bendapudi wrote herself. Let’s see how her administration has done:

Transforming Health Through Academic and Clinical Synergy
As Penn State’s academic health system, the College of Medicine and Penn State Health drive advancements in state-of-the-art patient care, data-informed community and public health, innovative medical education, and cutting-edge research to serve our region, the commonwealth, and society in unparalleled ways. Collaboration across the University, including among colleges and campuses, interdisciplinary research institutes, and allied health programs, enables enhanced opportunities to lead transformational impact and innovation in health promotion and disease prevention. Together, Penn State and Penn State Health will maximize health and wellness for our communities, the commonwealth, and beyond. 

Penn State is an 80% owner of Penn State Health/Milton Hershey Medical Center. I am deeply troubled by the terrible news that has been reported in the last few months regarding the closure of the abdominal transplant program. The problems exposed by concerned doctors, faculty, and medical staff appear to be caused by systemic senior administrative failures that have put patient lives at risk.

I admit that I sometimes get caught in the weeds of higher education policy, but the situation at Penn State Health is having a real and negative impact on people’s health. This is one situation where Dr Bendapudi can factually state* “people’s lives are at stake”. This situation must be immediately and publicly addressed by the Board and every effort made to ensure it is corrected.

Enhance student success.
With a focus on access and affordability, we are committed to providing an abundance of opportunities to help students succeed inside and outside the classroom. In a complex, competitive and changing world, we prepare students for in-demand careers and to be highly employable after graduation.

According to the latest IPEDS data, Penn State is still failing its most at-risk students; the Pell Grant recipients who continue to have graduation rates of only 50% after six years. This means that 50% of those students will be burdened with large student debt and no degree. An easy fix has been available for a long time: offer a university grant that matches the Pell Grant funds. Other Big10 Conference schools do this with great success, yet Penn State refuses to allocate the money. This is a discussion that the Board of Trustees must have.

Penn State has never been and never should aspire to be as exclusive and selective as the Ivy League. However declining admission yield rates that have sunk to an embarrassing level, and the subsequent decline in incoming student quality have numerous downstream implications, none of which are good. Positioning Penn State as an institution that ‘elevates’ students, particularly those from more challenging financial backgrounds, is a mission where much work has to be done.

Grow Interdisciplinary Research Excellence
Our world-class research enterprise is grounded in an interdisciplinary spirit, teamwork, and a dedicated group of researchers and scholars. Penn State’s breadth of expertise will enable the University to further enhance scholarship and creative activity and to tackle the most pressing challenges facing the commonwealth, nation, and world.

Interdisciplinary research is a Penn State strength and is frequently mentioned as such by faculty. Deriving greater financial return from Penn State research appears to also be a high priority item for the current administration, and if effectively implemented could be very beneficial to several University missions.

The last time Penn State ranked in the top 20 of national research institutions was 2014. Despite substantial increases nationwide in research funding, there is still significant work to be done to reverse recent trends and return Penn State to a top 15 position nationally.

Increase Land-Grant Impact
As Pennsylvania’s only land-grant university, Penn State is uniquely positioned to help students and serve the commonwealth. With a presence in every county in the state, we will focus on the needs of the commonwealth to promote economic development and research innovation, grow the workforce, and help local businesses, while providing a world-class education to students at twenty-four campuses across the state.

Obviously, the goals of significantly increasing state support have thus far fallen flat. This is disappointing, particularly with a Governor who appears to be outwardly friendly to supporting education, and a state budget that appears to favor increased spending. But it can be difficult to control the actions of political bodies.

More disconcerting is the continued lackluster philanthropic support Penn State generates relative to its peers. While fundraising is a challenging task, what is more disappointing is the apparent ease with which both administration and Board leadership seem to prefer to ignore fundraising performance rather than acknowledge the urgent need for improvements. Recent turnover within the Development group may be contributing to that challenge. The first step is to acknowledge the need for improvement.

Foster Diversity, Equity, Inclusion, and Belonging
Penn State is committed to advancing diversity, equity, inclusion, and belonging (DEIB) across our campuses so our faculty, staff, and students can fully realize their potential in an environment of inclusive excellence.

I’m sorry to state that after spending money on these initiatives for over ten years, there is scant evidence any of these stated goals has led to any meaningful positive impact on any of Penn State’s core missions. 

Transform Internal Operations
We will continue to reimagine, innovate, and evaluate new ways of how we work to make Penn State easy to navigate for all students, faculty, and staff; look for opportunities to better serve students; and focus on effective and efficient fiscal stewardship as a modern world-class university.

Significant financial challenges were inherited by the current administration, none of which are unique to Penn State. It may be that setting a three-year goal to balance the budget was not a good choice, thereby delaying implementation of more effective measures of budgetary control. 

There has been rapid turnover within the upper-level administrative ranks during Dr Bendapudi’s short tenure as president. Nearly half of all Dean positions and numerous VP-level administrative positions have changed hands and the results appear to be a mixed bag. It is certainly not the Board’s purview or responsibility to oversee or approve filling administrative positions. However the effectiveness the President displays in doing so is certainly the Board’s responsibility to evaluate.

Perhaps the most disappointing event was the selection of the Provost, one of the highest-ranking and impactful positions at the University. For the President to immediately replace the existing Provost with her hand-picked candidate is not unexpected, but to have events play out as they did left Dr Bendapudi in the unenviable position of dealing with an open Provost spot at a critical time.

To summarize: Penn State’s continued struggles with academic performance, student success, fundraising, institutional reputation, and affordability indicates that the Board must step in and create clear and meaningful performance metrics and do the hard work of holding the president, and itself, accountable. With thirty-six trustees bringing their diverse and vibrant contributions to the process, we should be able to quickly craft a powerful tool to optimize the university’s performance.

After all, it’s our job.

*At the May 21, 2024 Board of Trustees meeting to approve the $700 million Beaver Stadium renovation project, Dr Bendapudi urged the Board to approve the project, saying “If you think about the rural ‘T’ that we talk about, so many lives are dependent upon the success of Penn State and, frankly, this will set us up for a successful future…” (6:00 mark, https://psu.mediaspace.kaltura.com/media/Committee+on+Finance%2C+Business+and+Capital+Planning+and+Board+of+Trustees+Meeting/1_26npe460)

As a member of the Penn State Board of Trustees, I will from time to time be made aware of certain confidential information.  I will also engage with Trustees and administrators in private, off-the-record conversations, with the expectation of privacy on both parties. I take these expectations seriously, as they are required in order to catalyze important discussions.As a fiduciary, it is also important that I engage in conversations with all stakeholders of the University. Stakeholders like you.  Discussions will involve publicly available information and issues before the Board, as well as my personal thoughts, concerns, and ideas. I also will continue to solicit your thoughts, concerns, and ideas, and plan to engage in meaningful conversations with you on those topics. I hope that you will continue to share your concerns and ideas with me via my contact page.

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