Why one college president took a $90,000 annual pay cut

Kentucky State University interim president Raymond Burse took a major pay cut, then boosted the pay of university minimum wage workers. He's not alone in taking a pay cut. What's behind these moves? 

In cutting his salary by $90,000, Kentucky State University interim president Raymond Burse joins Stanford University president John Etchemendy, who cut his own salary by 10 percent in a very public way.

Kentucky State cajoled Mr. Burse, who was president of the university from 1982 to 1989, back to Kentucky after he worked as a top General Electric executive. By cutting his salary to $259,744, he was able to use the money to boost the salaries of 24 university employees who earned $7.25 to $10.25 an hour, CBS reported. He has maintained that the move wasn't intended as a "publicity stunt."

Though Burse gave $90,000 of his salary to Kentucky State University’s minimum wage earners and Dr. Etchemendy explicitly sought to tighten his Sanford’s budget, their aims may be more similar than first meets the eye, says David Yermack, who researches executive compensation at New York University’s Stern School of Business.

Public announcements like Burse’s can become the pretext for asking departments to reign in their budgets and employees to take similar salary cuts. An executive can use himself as an example in these situations, Dr. Yermack says. The Courier-Journal reported that Kentucky State University has a $7 million budget gap.

“This is purely symbolic,” Yermack says.

Even if the decision is coupled with larger-scale budget cuts, if it is coupled with a public “convincing story of shared values and shared vision,” this could inspire faculty and staff at the institution, says David Levine, a professor at the Haas School of Business at the University of California at Berkeley.

Dr. Levine’s research has found that layoffs and budget cuts are more acceptable to lower-paid employees if executives share some of the pain.

Despite newsworthy compensation cuts, executive compensation at public and private colleges is trending higher. The median compensation of presidents of public colleges was $478,896 in 2012-13, according to a spring Chronicle of Higher Education analysis. In fiscal year 2011, that figure was $421,395, already a 2.9 percent increase from the prior fiscal year, the Chronicle reported. 

And with this climb, headline-grabbing salaries, like that of former Ohio University president E. Gordon Gee, whose total compensation was more than $6 million in the 2013 Fiscal Year, prompt some faculty members to wonder how compensation at the top translates to those doing day-to-day operations.

For example, earlier this year St. Mary’s College sought to tie administrators’ salaries to that of the lowest-paid employees. Jordan Price, an associate biology professor at St. Mary’s College, says that an official policy doing this would boost morale at academic institutions and at corporations. 

Back in the winter, alumni, students, staff and faculty, including Dr. Price, indicated their support online but got shot down in the faculty senate. Since then, the faculty has not brought it to a public forum, but he noted that he still sees benefits to such a plan.

“The good will that would engender would compensate for the lost income,” he says.