Straws in the Wind - Part 279

From the Stanford Review: Last year, Stanford paid former President Marc Tessier-Lavigne a $2 million salary after he resigned in disgrace—but he wasn’t even on campus. He was on leave, running a multibillion-dollar biotech startup, and somehow collecting a higher salary from the university than when he was its President. This is how the compensation system was designed to work. The money is part of a largely confidential deferred compensation plan, agreed to in advance by the Board of Trustees. It’s not just former presidents either: Philip Pizzo, who left his position as dean of the School of Medicine in 2012, collected $4 million well over a decade after his departure. Former President John Hennessy went from $1.5 million to $2.4 million.

It’s clear why the executives would prefer this structure. Deferred compensation is tax-efficient, reduces sticker shock, and helps the board compete for leaders who could earn more in the private sector. But while their artificially deflated salaries show up on IRS reporting, the real terms are confidential, and board records are restricted for twenty years. The public disclosures only report what was paid year to year. By the time the full story surfaces, the contracts are already binding.

Imagine how preposterous this would seem for any other job. How perverse would the incentives be if a hedge fund told its manager that most of their pay comes after they leave, and they can collect even if they lose half the portfolio? No firm would structure compensation that way, because the point of accountability is that it exists while someone still holds power. If a regular Stanford employee resigned in the same circumstances as Tessier-Lavigne, amid an investigation that found problems occurring at “unusual frequency” under their supervision, they’d walk away with nothing beyond their last paycheck. The MTL case isn’t even the worst possible scenario; a future president whose actions cause genuine institutional damage would receive a seven-figure check for potentially decades to come, and we’d learn about it two years later on a tax form.

The fix here is straightforward and far from novel. Publish the total value of executive compensation packages, and disclose the terms and vesting schedules...

Full story at https://stanfordreview.org/why-stanford-hides-massive-executive-paychecks-in-secret-contracts/.