Datafile: A Picture of Variable Pay

By Kristen Hodge-Clark    //    Volume 22,  Number 4   //    July/August 2014

In order to recruit and retain effective leaders who are able to advance rigorous strategic goals and other institutional priorities, boards are considering various forms of compensation. A recent AGB Quick Governance Survey (QGS) sought to understand the national trends in presidential variable pay, also known more informally as bonuses or performance pay.

The survey was posted on the AGB blog and sent electronically to board chairs and other executive committee board members of AGB member universities and colleges. A total of 213 respondents completed the survey. Of those respondents, 42 percent were board chairs, 42 percent were board committee members (but not the chair), 12 percent were presidents or chancellors, 3 percent were board professionals, and the remaining were “others.” By sector, 78 percent of all respondents represented independent institutions, 13 percent represented public institutions, and 9 percent represented for-profit institutions.

The survey asked respondents a short series of questions about their institution’s policies and practices as they pertain to variable pay. The findings indicated the following:

  • Slightly more institutions offer variable pay than do not. Approximately 52 percent of all respondents indicated that their institution or system’s chief executive is eligible to earn performance-based variable pay as a bonus. By sector, the findings are similar for public (52 percent) and independent institutions (51 percent). However, among for-profit institutions, almost two-thirds (65 percent) offer variable pay for presidents.
  • Variable pay is not the only form of performance-based compensation offered. Many institutions, even those that do not offer variable pay as a bonus, offer other forms of compensation. Nearly 48 percent offer deferred compensation, 26 percent offer sabbatical leave, 18 percent offer housing allowances, and 2 percent offer research subsidies.
  • A range of metrics is used to determine variable pay. Boards use several different metrics to determine variable pay. The top three most frequently used measures cited by independent institutions were: fundraising goals (48 percent), budget targets (47 percent), and progress on institutional initiatives (46 percent). Among public institutions, graduation rates (30 percent), budget targets (26 percent), and fundraising goals (26 percent) were the most common measures. For-profit institutions used similar measures to nonprofits to determine variable pay. Their top three most frequently cited measures were: budget targets (61 percent), enrollment goals (61 percent), and fundraising goals (54 percent).
  • CEOs are assessed annually for variable pay. Among all respondents whose institutions provide variable pay, the vast majority (92 percent) indicated that their CEOs are assessed annually for incentive bonuses. The remaining respondents indicated that they were unaware of when these assessments occur (2 percent) or that their institutions do so once (4 percent) or several times (3 percent) during the president’s contract term.
  • The percentage of CEO pay that is tied to performance varies. Over one-third of respondents (39 percent) indicated that less than 5 percent of their current chief executive’s pay is variable. For all others, the percentage of pay tied to performance ranged from 6 percent to over 30 percent. Approximately 16 percent indicated that 6 to 10 percent is variable, 19 percent indicated that 11 to 20 percent is variable, 7 percent reported that 21 to 30 percent is variable, and 4 percent stated that over 30 percent of their CEO’s pay is variable. The remaining 16 percent were unsure.

While a substantial number of the responding for-profit institutions offer variable pay for their chief executives, a smaller percentage of independent and public institutions do so. Of all institutions that do offer variable pay, most often they assess their CEOs annually and use a combination of metrics to evaluate performance. Many of these metrics are tied to the financial well-being of the institution and are easily measureable.

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