by Donna Iadipaolo

The Chronicle of Higher Education published information provided by a group of U-M tenured faculty that exposed millions in secret incentive and bonus pay given to top-level administrators. Faculty call for dialogue; U-M leaders continue to stonewall.

THE UNIVERSITY OF Michigan is officially refusing to take action or meet with the faculty group that published an open letter in April, alleging secretive, outlandish administrative awards, and other unfair practices.

U-M leaders have attempted to use the press to explain the rationale of their spending. But the methodology of the process for awarding bonuses is still fundamentally under question (and attack) by many.

“When you set up a system that is highly discretionary and highly secretive the possibility of abuse is obvious,” said tenured History Professor Dario Gaggio, one of the writers of the April letter.

That April letter shows that salaries for upper-level administrators were set significantly higher than administrators in similar posts at peer institutions. The allegations are based, in part, on data obtained through the Freedom of Information Act. The faculty also allege that administrative bonuses are out-of-control and awarded in a secretive manner.

Current State of Michigan law only requires that public college disclose base salaries, but additional pay must also be made public through open-records requests.

According to the professors’ analyses of the pay data, the grand total increase among four additional pay categories “grew from approximately $13 million in 2004 to $46 million, representing an increase of 260 percent, approximately nine times the cumulative rate of inflation over the nine-year period.”

For instance, Rowan A. Miranda, associate vice president for finance, received a publicly disclosed salary of $330,000  in 2012, but additional pay, not allocated in the original budget, of $130,000 that same year.

In the open letter, professors called for a freeze on administrators’ salaries as well as an outside audit to review salary awards.

“The University of Michigan is now under a huge amount of pressure over these issues,” said Gaggio. “And I’m not saying there is not good will to address these issues. But, this needs to be done in a comprehensive way, and in a just way.”

Gaggio said the that the University’s choice not to take any action on the issue at this time was “irresponsible,” but predicted the University will eventually have to deal with the situation.

“They (the University) will have to take action,” said Gaggio. “They will have to.”

Public Arguments

Gaggio explained that there are really no justifications for the University’s spending. He said that he doubts that anything at the University has been rising as fast as the administrative bonuses.

“Explosive growth in compensation at the top without any corresponding explosive growth in endowment funds,” said Gaggio.

Furthermore, he explained that U-M’s rationale has not been clear.

“The explanations they have given so far are very murky,” he said.

Gaggio said that the University made a particular argument that was “egregious.”

“The University said the additional bonus strategy was a way for them to cope with the recession,” according to Gaggio. “If anything the recession actually led to a slight decrease in giving out bonuses. (They are) presenting that the giving out bonuses as a way of compensating worthy people all in the face of the financial crisis. None of that is borne out by the data.”

The data of the professors’ report do show a slight decrease of giving out bonuses in 2007, compared with other years.

“They are using the past tense as if these are practices that ended with the recession, or in the past,” said Gaggio. “They are not.”

He also noted that when the University hired a new administrator the hiring salary is higher, sometimes 25 percent, than that of the departing administrator.

“Its a whole pattern. It is the bonuses, the excessive base pay,” explained Gaggio. “They can’t really justify that by saying that the University of Michigan has a hospital. Lots of public schools have hospitals. Or by the size of the endowment. Harvard has an endowment that is four times the size of the University of Michigan and yet the President of Harvard makes the same salary as Mary Sue Coleman. According to this logic, Harvard’s president should get paid four times? It doesn’t really make any sense.”

The University has also argued that because U-M has a multi-billion dollar budget, administrative positions, such as the chief financial officer, should be compensated more.

Gaggio and his fellow whistle blowers disagree.

“The salaries are completely out of control and in a world of their own,” said Gaggio.

He added that other universities across the country are calling for greater transparency in setting administrative salary levels.

“We are raising this issue that a lot of people around the country are raising,” said Gaggio. “It is obviously not just a University of Michigan problem. But University of Michigan has been engaging in these practices in a particularly egregious manner.”

He also pointed out that nobody from the University disputed any of the number crunching and calculations in the April letter.

“The numbers are correct. Had they not been correct that is the first thing they would have said.”

In an email interview, Rick Fitzgerald, associate director in the Office of Public Affairs and Internal Communication at U-M, disputed that the term “bonuses” be used to describe supplemental pay.

“Again, these are not bonuses. Faculty and staff members earn additional pay for a variety of reasons,” stated Fitzgerald. “Using non-base pay to reward exceptional performance and compensate for additional duties rather than permanently adding to a person’s base salary allows the university to maintain flexibility in how we spend since it’s not a permanent increase. This is smart business, especially during difficult economic times.”

Not everyone agrees with Mr. Fitzgerald’s logic.

In 2012, charging “moral turpitude,” leaders of the Howard University Faculty Senate protested more than $1.1 million in bonuses paid to high-level officials as the university moved forward with controversial cuts.

According to a 2011 study published by the College and University Professional Association for Human Resources (CUPA-HR) of administrative bonuses paid out at over 1,200 colleges and universities in the U.S., the supplemental pay and bonuses awarded by U-M to its administrators in 2011 surpassed those paid to administrators in similar positions.

For instance, in 2011 U-M paid CIO Erik Lundberg $747,354 in “incentive” pay. Meanwhile, the median incentive paid to college CIOs across the nation  that year was $107,666, according to the CUPA-HR study.

Likewise, U-M’s VP of development Jerry May was awarded $100,000 in “supplemental” pay on top of his $359,575 salary. That was 9 times the median bonus paid to VPs of development in 2011, according to the CUPA-HR study.

Fitzgerald actually suggested that the “non-base pay” was a way to control exponential salaries.

“Base salary is permanent. Non-base pay, or additional pay, such as administrative differentials or salary supplements come and go with the individual and individual circumstances,” said Fitzgerald. “In some cases, pay is provided when defined performance objectives are met. In other cases, added pay is used when faculty or staff temporarily take on added duties outside their normal work. This is a fairly typical way to pay people for taking on added duties. This practice works to hold down ‘salary inflation.’”

Outpouring of Support

General momentum appears to be with Gaggio and the rest of the faculty who wrote the letter.

“I’ve had an outpouring of support from faculty, and also from some staff,” said Gaggio.

“Non-tenured faculty and staff have come forward—despite their fear of retribution for blowing the whistle on these practices. Staff report on having to fight tooth and nail, for instance, to have their wages raised a little bit….” said Gaggio.

To many, University officials appear to be giving themselves Wall Street-sized bonuses instead of keeping the public’s best interest in mind by cutting costs everywhere.

“They are treating themselves to massive increases in base salaries, and massive increases in bonuses. They can’t really deny it,” said Dario Gaggio.

The April letter doesn’t document an isolated incident. It establishes a long-time pattern.

“So there is enormous amount of discontent, I think, at the University that has been brewing over the years,” said Gaggio.  And, I think, is bound to come to the surface now. It is coming to the surface.”

Gaggio added the general philosophy of the University as a public institution has changed by those at the top.

“It is the complete corporatization of the University. And that has clearly been happening everywhere (at other colleges as well). But clearly U of M is at the cutting edge of this,” said Gaggio.

The majority of money spent on bonuses has come from general funds instead of the allocated salary budget, which could, in theory, therefore take away from instruction and instructional support.

For instance, the trend, especially in terms of staff support, has been going on for years of reducing the amount of staff support on which departments and instructional units can rely. According to Gaggio, this pattern is worsening, because of the AST (Administrative Services Transformation) project, that is moving ahead, which reduced staff support. And there has been overwhelming opposition by faculty and staff to these trends.

Gaggio says: “We are told that we have to tighten our belts, and all of this have been happening in many different ways, many of them absolutely legitimate. So we have been tightening up the best in terms of entertainment expenses and or the kind of things you can claim when you go on the research project. It has been kind of a general movement.”

More than 1,100 faculty signed a letter last December protesting the AST project.

“They can’t claim to be committed to cutting cost when their own compensations have been increasing out of control,” said Gaggio.

Furthermore, Gaggio said there has also been this movement aimed at the reduction of staff support for research and teaching. He said this has been much more controversial for faculty. Such cuts result in faculty assuming more administrative tasks.

Fitzgerald contents that the University has been managing its money in a smart manner, and that instruction in not suffering as a result of bonuses.

“Academic excellence is our highest priority,” said Fitzgerald. “That is why 90 percent of the additional pay paid in FY2013 was paid to faculty members. Academic excellence begins with recruiting and retaining the very best faculty members. They are the heart of the university.”

Fitzgerald seems unaware that, in 2013, the contract between U-M and its 1,500 non-tenured faculty called for a zero percent pay increase.

He pointed out that the medical school faculty were a particular exception.

“Additionally, much of the additional compensation does not come from the general fund,” said Fitzgerald. “One of the largest areas of additional compensation is paid to medical school faculty members. Nearly all of those dollars are generated from clinical fees from the procedures performed by the physicians. The investment staff compensation is tied to the performance of the investments, so none of that comes from the general fund.”

The Fight Continues

Gaggio said he and the other faculty see this as a long-term battle with the administration.

“We are trying to draw attention to it and correct it. Obviously, it won’t be tomorrow,” said Gaggio. “As you can see, they are being extremely defensive. They are trying to contradict the data, supplying a narrative that makes the data look less damaging. But so far, I have not seen anything that is convincing on their part.”

“We are going to take this up again—through the Summer, and into the Fall. It is not a battle that is going to be waged in a couple of days or weeks…This is really part of a long-term confrontation over very different visions of the University. And they have to come clear with the kind of vision that they have.

“We are going to address the regents directly, though meetings. We are going to set up a calendar of interventions.”

He added that they are also considering pursuing the legislative route.

For instance, University of California and SUNY systems decided on measures of greater transparency.

“There are many ways that transparency can increase and that is one of the basic things we ask,” said Gaggio.

Gaggio said they are also considering public protests.

“If nothing is going to happen, we are going to step it up.”

He also contends that they are working on these issues to improve U-M.

“We love this University, and we want to make it better….” said Gaggio. “The direction that they are moving in is not the right one. They need to reassess their priorities and act accordingly.”

According to Gaggio, the public should be concerned.

“It is an important symptom of the general trend in higher education that seems to be suggesting that unrestrained growth is the way of the future. Unrestrained growth of everything: of the budget, of tuition, of compensation. So the idea that these institution are here to serve the public is being lost.”

Spokesman Rick Fitzgerald maintains that the administration has had the entire staff, faculty, and academic integrity of the University in mind when making financial decisions, particularly during difficult times.

“It’s also worth noting that during the worst economic downturn in recent history, one of highest priorities was maintaining competitiveness for faculty so we are able to recruit and retain the best,” stated Fitzgerald. “When other institutions were laying off faculty, and implementing hiring and salary freezes and furloughs, we:

• Hired 150 new faculty members.
• Had a merit program for faculty every year (a major goal).
• Had no faculty layoffs or furloughs.

And we were able to achieve a merit program and no furloughs or large-scale layoffs for staff as well.”

Fear and Loathing in Ann Arbor 

Anthony Mora is Associate Professor of History and American Culture. Mora also stated that learning about the exorbitant bonuses was particularly difficult given the University’s austerity program.

“Information about the supplemental pay first leaked for the individual who headed the AST debacle in October,” described Mora. “We were astounded that the upper-level staff administration would treat working departmental staff with such disrespect while all the time helping themselves to enormous raises and bonus pay.”

Mora described the dichotomy as a kind of tale of two cities.

“We just could not believe that the upper staff administrators could operate with such greedy indifference to the better welfare of our campus,” he said.

Mora added that the administration has not welcomed faculty input on this issue.

“Many of the people involved in the letter continue to be fearful of the administration,” said Mora. “There had been a historic unity of purpose among the faculty opposing AST. Instead of hearing our real concerns for our staff colleagues, the upper administration acted contemptuously towards us.  They made it clear that they were not interested in being nice about things.”

Mora also wanted to make clear that the purpose of the April letter was not to get increases in pay for professors. In fact, their study showed that professor salaries at U-M are in step with those at peer institutions. Their main contention is the hypocrisy on the part of top-level administrators—behavior which adversely impacts the main mission of the University.

“Upper level staff administrators in HR and finance claim for themselves special exemptions and supplemental pay based on their supposed increased volume of work.  Yet, out of the other side of their mouths, they have also told departmental staff that they should be willing to take up a bigger burden of work without compensation to serve the greater good of the university,” according to Mora. “We just don’t think that is okay. As the levels of supplemental pay come to light… AST looks more and more to me like a disingenuous effort  to show that HR and finance administrators are serious about saving money while all the time they are actually themselves taking home thousands of dollars of supplemental pay.”

Fitzgerald said that while the University will not meet with the faculty who wrote the April letter, or take any action they recommended, they have met with faculty about financial matters in the past.

“The university, including the president and the provost, has had numerous discussions with various faculty members regarding total compensation,” said Fitzgerald. “In fact, President Mary Sue Coleman addressed this topic during the January Faculty Senate Assembly meeting.”