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The University of Chicago paid James Madara $2.5 million in severance when he stepped down in 2009 as medical dean and hospital chief. Madara, who remained on the faculty, later joined the American Medical Association.
Congress is taking a look at such payments following disclosures that Jacob Lew, the new U.S. Treasury secretary, received a $685,000 bonus when he left New York University and had $1.5 million in housing loans from the school.
Harvard and Stanford universities also offer real estate loans with sweet terms, records show. While the amounts are small relative to university budgets, the perks insulate faculty and administrators from the costs upsetting many middle-class families, said Jonathan Robe, a research fellow at the Center for College Affordability and Productivity in Washington.
“It certainly gives the public a clear example of how out of touch some universities are,” Robe said. “Parents will think, ‘Here I am scraping by, raiding my retirement plan to pay for college. Why are they making me do this just to enrich these executives?”’
Congress and President Barack Obama have been pushing colleges to control tuition and other costs, which can exceed $60,000 a year at a private school. In a weak job market, students are struggling to pay off $1 trillion in education loans.
Exit bonuses are becoming more common among senior executives at large colleges in major cities, said Stephen Joel Trachtenberg, a former president of George Washington University who does executive-pay consulting.
Typically, such “super severance” amounts to one to three times an administrator’s annual salary and bonus, according to Charles Skorina, founder and president of an executive-search firm in San Francisco who specializes in placing finance executives at universities.
Especially at universities on the East and West coasts, where real estate expenses and other costs are high, trustees including Wall Street executives are eager to pay their presidents top dollar, Skorina said. They look for ways to pay additional compensation that doesn’t show up in annual surveys that can anger donors and employees, he said.
“You look for sweeteners, the car and driver, the house and then a back-end exit bonus,” said Skorina. “An exit bonus is palatable because until the guy leaves you don’t have to deal with it.”
Colleges say they must offer compensation packages to win over talented executives and faculty. Harvard and Stanford said they keep tuition affordable with generous financial-aid programs. High-level administrators focus on efficiency and financial health, said NYU spokesman John Beckman.