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The high cost of status

Top administrator salaries point to universities’ pursuit of global recognition, and it’s hurting education quality


 

Take a guess: who earned the largest paycheque last year at Carleton University? If you guessed President Roseann Runte, with her $358,000 annual salary and $43,000 in taxable benefits, you’re wrong. Some high level financial manager, you say? Nope; vice-president of finance and administration Duncan Watt made a measly $256,000 annually plus $4,000 in benefits.

The highest paid employee at Carleton in 2009 was Feridun Hamdullahpur, vice-president research and international, according to Ontario public sector salary disclosure figures released Wednesday. Having earned $503,000 plus $12,000 in benefits, Hamdullahpur ranked third highest paid university employee in Ontario.

But to say Hamdullahpur enjoyed the highest salary is somewhat misleading. He stepped down from his post at Carleton in July 2009 to become vice-president academic and provost of Waterloo University, meaning that much of his 2009 compensation was likely a severance package, possibly including pension and other supplemental benefits. (He earned $230,000 in 2008.) Nevertheless, his comfortable salary and generous severance package demonstrate just how much Carleton valued Hamdullahpur’s work.

Related: Hey administrators. Quit your job, earn big bucks

Hamdullahpur’s compensation also illustrates a trend that is impacting universities from coast to coast. Universities, particularly large research-focused schools, are putting more and more resources into pursuing global status.

In Hamdullahpur’s case, his work overseeing international activities at Carleton was one of Waterloo’s reasons for hiring him. A Waterloo press release announcing his appointment states, “Hamdullahpur will play a key role in helping the university achieve the ambitious objectives outlined in its strategic plan, Pursuing Global Excellence,” and goes on to describe those objectives as including the expansion of Waterloo’s global reach. He will surely continue to be handsomely rewarded for his efforts at Waterloo; his predecessor ranked as Ontario’s number one earner having pocketed a whopping $737,000 in 2009 (which also likely included a severance package).

These staggering numbers are indicative of a slow shift of vision that has been occurring for years on Canadian campuses, according to Bill Smith, an independent researcher who was formerly the general manager at the University of Alberta Students’ Union for 17 years. “The focus has switched from [on] campus to off campus,” he says.

Smith’s research—a 20-year analysis of university spending based on numbers submitted by universities to the Canadian Association of University Business Officers—shows that the average university spent almost $9 million on external affairs in 2007-08. The Top 5 schools, which are most eager for global recognition, spent $15 million on average.

Smith wrote about his research in Maclean’s in January. Click here to read: “Where all that money is going.”

To Smith, the salaries of university top brass aren’t the most troubling aspect since they only account for a small portion of overall spending. What is of concern, he says, is ballooning central administration costs. “It’s all the infrastructure under these people,” he says. “These are bright people with big dreams and the only way they can make them happen is by building a big support infrastructure and then you start seeing things like international vice presidents, vice presidents of external affairs. Before too long, you’ve really jacked up central administration costs.”

Attracting high quality people to pursue goals like boosting a university’s global status is expensive, and has contributed to escalating central administration costs. In 1987-88, the top 25 universities in Canada spent 7.8 per cent of their general operating expenditures on administration costs, which rose to 11.7 per cent in 2007-08. At the top five schools, administration spending grew from 7 per cent of all expenditures to 12 per cent.

While “pursuing global excellence,” in Waterloo’s words, seems to be a noble objective, there is no indication that it benefits students. Take, for example, the University of Alberta. President Indira Samarasekera has pledged the university will be recognized as one of the top 20 universities in the world by 2020. “Was there ever any public discussion about whether that is a legitimate goal? Is that goal important to the public that is funding these universities?” Smith questions. “I don’t know if anybody had any clear idea of what the price tag was going to be.”

As an aside, Samarasekera is among the highest paid university presidents in the country. Administration costs at the University of Alberta have doubled since 2000-01 and have quadrupled since 1994-95.

With university budgets as stretched as they are, money spent on administration is money not spent in the classroom. In 1987-88 the top 25 universities spent 65 per cent of general operating funds on instruction and non-sponsored research; now only 58 per cent is spent on teaching, meaning some $30 million has been deflected from the classroom.

This is why Smith argues that some universities appear to have become preoccupied with status rather than excellence. The dangers of ballooning administrative costs go further than the erosion of education quality and threaten universities’ overall financial sustainability, he says. “When enrolment falls, and it will at some point, this massive residue of central fixed cost is going to act as a millstone and drag universities into a much deeper crisis than they’re in now.”


 

The high cost of status

  1. Universities are going the same way hospitals have.
    Hospitals never had money problems in Ontario until so-called professional administrators began running them. It doesn’t sound like university administrators are educators or academics either.

  2. With pay freezes coming down the pipes and retiring/leaving faculty not being replaced at Waterloo, there is no way it can compete on a global scale.

    Spend the money on good faculty, lower faculty-to-student ratios, and less on administrators.
    It’s the faculty that make a university’s ‘brand’ strong, not the admins.

  3. Why is severance pay given to senior administrators like Chakma when they leave their position early?

  4. In the April 1 article The high cost of status, Erin Millar cites an article by W.D. Smith, which noted a large relative increase in expenditures on university administration and external relations over a 20 year period. However, the reported increase in this article does not illustrate a real shift in activities supported by the university, but rather reflects new accounting practices that all Canadian universities – and much of the public sector – adopted on the recommendation of the Canadian Institute of Chartered Accountants for the 1999-2000 fiscal year.

    These new practices effectively increased the reporting of amounts spent in some areas – like administration – while not impacting other major areas of expenditure, such as academic salaries and benefits.

    If the analysis was limited to the period from 1999-2000 to 2007-2008,when the accounting procedures were consistent, it would show that administrative costs as a proportion of operating costs, rose by just one percentage point — from 11.7 percent in 1999-2000 to 12.8 in 2007-08.

    Administrative and external relations costs are driven by a number of external factors, such as the cost of administering student aid programs, computing, plant, capital, fund-raising and research expenditures. It would therefore be even more appropriate to compare these costs to total university expenditures, rather than just the total operating budgets. On that front, the ratio of administrative and external relations costs to total university expenditures was unchanged at 7.4 percent in both 1999-2000 and 2007-08. Moreover, it is also apparent that the rise in fundraising costs has also helped generate significant additional revenues to support teaching, research and community development.

    Administrative costs have also grown in direct response to the rapid rise in student numbers, and as a result of the increasing expectation that universities will conduct more research, become more engaged with their local community, and be more accountable to governments and other stakeholders.

  5. I’m assuming that the above comment was posted by the Paul Davidson who is president of the Association of Universities and Colleges of Canada. AUCC has 95 member-schools, boasts twelve major university presidents on its board of directors, and describes itself as “the voice of Canada’s universities”.

    Working on that assumption I’m going to provide a fuller response because Mr. Davidson’s interest is pleasing – and he’s in a position to pass concerns on to very senior university people.

    Taking him up on his suggestion, and ignoring obvious (and troubling) questions about the accuracy of admin cost reporting prior to 1999, let’s use 1999-2000 as the base year.

    CPI Inflation from June 1999 to May 2008 was 23.4%.

    During that period, Top 25 expenditures on Instruction and Non-Sponsored Research increased by 71.7% (largely fuelled by major tuition fee and grant increases). However, expenditures on central administration increased by a whopping 95.9%. At the average Top 25 university, central admin cost $27.5 million in 1999-2000 but that had zoomed up to $53.8 million last year – almost doubling in just eight years. One of the causes was the cost of significantly richer staff benefits packages compared with the rest of campus.

    I’d like to address some specific comments:

    “If the analysis was limited to the period from 1999-2000 to 2007-2008, when the accounting procedures were consistent, it would show that administrative costs as a proportion of operating costs, rose by just one percentage point — from 11.7 percent in 1999-2000 to 12.8 in 2007-08.”

    That 1.1% on a total general operating budget of $462 million (the Top 25 average) amounts to over $5 million, which is a ton of extra administration – equal to 68 ADDITIONAL central admin people since 1999-2000 (far more at the larger schools), costing $75,000 per year each. That’s money that the classrooms desperately need – or money that could reduce tuition fees.

    “Administrative and external relations costs are driven by a number of external factors, such as the cost of administering student aid programs, computing, plant, capital, fund-raising and research expenditures. It would therefore be even more appropriate to compare these costs to total university expenditures, rather than just the total operating budgets. On that front, the ratio of administrative and external relations costs to total university expenditures was unchanged at 7.4 percent in both 1999-2000 and 2007-08.”

    All those individual cost areas have their own infrastructure, completely separate from central administration, so I would argue that there’s no reason for a central cost impact as well. Admin costs have indeed remained at around the same proportion of total university expenditures since 2000, but this shows that the schools have completely failed to exploit any economies of scale. Why is it acceptable for central admin costs to increase in proportion to revenues? That, surely, is the whole point. It’s not like a university needs need to double central staff and other costs (two presidents, two registrars, two administration buildings!) just because enrolment or income doubles. No organization can remain healthy operating like that.

    Using that comparator for admin costs paints a false picture. The more important fact is that central administration expense is paid from the general operating fund, which also pays for the teaching side of things. So, money spent on central admin comes straight out of the classroom, because you can’t spend it in two places. Central Admin consumed 10.5% of that fund in 1999-2000 but it was up to 11.6% last year. In contrast, Instruction & Non-Sponsored research enjoyed a 59.6% share in 1999-2000 but only 58.1% last year. These are not good numbers, and even worse if we go farther back. In 1987-88, administration consumed only 7.8% of general operating funds, and 64.7% made it to the classroom.

    Performance has not improved at all – even if we use 1999-2000 as the base year, as Mr. Davidson requests. The best that can be said is that the pace of deterioration has moderated. Some schools have done quite well at keeping central administration costs under control and getting money to the classroom, but others (including some big name schools) most certainly haven’t.

    “Moreover, it is also apparent that the rise in fundraising costs has also helped generate significant additional revenues to support teaching, research and community development.”

    I’m not sure how much the universities’ fundraising efforts supported teaching (they are mainly aimed at research and at capital items such as buildings) but I do know that the massive increases in tuition fees did.

    “Administrative costs have also grown in direct response to the rapid rise in student numbers, and as a result of the increasing expectation that universities will conduct more research, become more engaged with their local community, and be more accountable to governments and other stakeholders.”

    Why should administrative costs grow “in direct response to the rapid rise in student numbers” when the same has clearly not been true for faculty budgets? If anything, the proportional cost increases should have been in the faculties, where the increased enrollment impact is most directly felt – and then we wouldn’t be seeing overcrowded classrooms and overburdened teachers.

    There are lessons to be learned and changes to be made. Or else the current problems are going to worsen.

  6. Interesting to start with some Carleton salaries because they’re doing a bang-up job there in Ottawa, trying to wreck the student unions and push TAs and contract instructors out on strike. Cut these ridiculous administration salaries and they might smarten up.

  7. This is what happens when the bosses make their own salaries.

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