Proper Balance in Paying Off a Departing Leader
My brother-in-law is a fully tenured professor at the University of Utah, so higher education occasionally finds its way into our conversations. Recently, he told me about something happening in Utah that immediately caught my attention.
The state is beginning to put provisions into contracts for public university presidents that require them to pay money back if they voluntarily leave before completing their contracts. The payment can reach $200,000, depending on when the president leaves. The goal is straightforward: if a university makes a significant commitment to a president, the president should make a meaningful commitment in return.
My first reaction was: Good for Utah.
I had never heard of this approach with university presidents. The closest comparison I could think of was college athletics, where contracts have become increasingly complicated about who owes whom money when someone leaves. We have even seen the strange situation where a fired college football coach has a contractual obligation to "look" for another job because the university paying the buyout requires the coach to mitigate its financial damages. Someone can receive millions of dollars for no longer coaching while periodically demonstrating that he is searching for employment.
I have watched these golden parachutes for years, particularly in sports and executive leadership. Like a lot of people, I have occasionally wondered, "Where can I get mine?" I already know the answer. I can't. Most people can't.
For most of us, if a client no longer wants our services or an employer decides our performance is inadequate, nobody hands us several years of compensation on the way out the door. Yet, at certain levels of leadership, we have somehow accepted enormous, guaranteed payments as a routine cost of hiring someone.
That raises a question I find fascinating. Is the talent pool for these positions really so bereft of talented, experienced and capable leaders that organizations have virtually no negotiating leverage?
I find that difficult to believe.
A university presidency is unquestionably a demanding position. So is leading a major nonprofit, health system, corporation or athletic program. Talented executives deserve to be well compensated. Organizations also need competitive compensation packages to recruit people capable of handling complex leadership responsibilities.
But somewhere along the way, competitive compensation can become excessive protection. If an organization expects to pay a leader hundreds of thousands or millions of dollars when it ends the relationship, why shouldn't the organization receive some protection when the leader ends the relationship?
Consider what happens when a university president suddenly leaves. The institution may conduct an expensive national search. An interim president may be needed. Strategic initiatives can stall. Donor relationships may be disrupted. Faculty and staff face uncertainty. The institution invests significant time and money establishing a new administration.
Then another university can recruit that president away, leaving the first institution to absorb the consequences. Utah is essentially saying there should be accountability on both sides of the contract.
I like that idea.
This goes beyond university presidents. Boards and organizations should ask themselves whether executive contracts appropriately balance the interests of the leader and the institution. Negotiating leverage should not automatically belong almost entirely to the person being recruited simply because the position is difficult to fill.
There are talented leaders in higher education, healthcare, philanthropy, business and athletics. Organizations should compete for them and compensate them appropriately. They should also stop assuming that recruiting exceptional talent requires giving away nearly every contractual protection.
Good for Utah. Others, in and outside of higher education, should be watching.
