The base compensations of the University’s two top chief investment executives, Andrew Golden and Jonathan Erickson, both went up by just over 5 percent last fiscal year, maintaining the executives' positions as the two highest-paid University employees.
Golden’s base compensation was $737,476, while Erickson earned $608,976, according to the University’s most recent 990 form, a public document that includes financial details of nonprofit organizations.
Golden’s cited bonus and incentive compensation stands at $1,214,274, a 48 percent increase from last year. His retirement and other deferred compensation was $912,724, a 94 percent increase from last year.
The University’s compensation agreement is set up to align the interests of the University and the Princeton Investment Company staff, focusing on long-term, multi-year results while discouraging undue risk taking, Golden said. The compensation framework provides incentives to focus on the long term by basing bonus awards on the endowment’s performance over trailing three- and five-year periods, he explained.
However, Golden said that the vast majority of the bonus awards cited in any given year are deferred, and must vest before they are paid out three to five years after they are first determined. When the award vests, the employee is legally entitled to the money, but is not necessarily paid this amount in salary said Marcus Owens, a tax lawyer with Caplin & Drysdale and a former director of the Exempt Organizations division of the Internal Revenue Service.
Also, during that time, the awards are at risk because they are retroactively diminished if the endowment suffers losses and retroactively increased if the endowment has gains, Golden added.
Therefore, Golden said, his compensation in any given year is influenced by the endowment’s investment performance in each of the preceding 10 years.
This type of agreement is common at nonprofits to incentivize employees to stay longer, as they do not gain access to the funds unless they maintain their performance, Owens said. This type of arrangement is sometimes called “golden handcuffs,” he noted.
“My compensation remains significantly below what it was pre-crisis,” Golden said, adding that because the bonus system focuses on multi-year periods, the endowment’s losses during the financial crisis in 2008 have continued to dampen compensation.
Although the endowment has now recovered and stands at a higher market value than its pre-crisis peak, Golden said, the system is designed so that any losses experienced by the University diminish his compensation substantially. Golden said he thinks thisstructureis fair, well-designed and unlike many Wall Streetcompensation systems.
“For the most recent 990, the headline number reported for my compensation double counts about $1 million,” he said, a misstatement that indicates an annual salary of approximately $2 million.
While analyzing a series of consecutive 990 forms may provide a general idea of how much compensation the top earners of a university are receiving, a concrete value is always hard to estimate, Owens said. Not only are the fiscal year and the academic year not in unison, but compensation packages often feature deferred funds that take into account the endowment’s long-term returns and other variable factors.
Since the University’s bonus agreement rests on long-term results, compensation values may experience spikes from one year to the next, Owens said. In the fiscal year of 2009, for example, Golden’s base compensation was $671,240, his incentive compensation was $1,290,626 and his deferred compensation was $484,686. Adding nontaxable and other benefits, his compensation amounted to $2,549,323. The very next year, this total was $1,458,774, a sudden 43 percent decrease.
A similar pattern of jumps is seen in his retirement and other deferred payments, which went down by 66 percent between fiscal years 2009 and 2010, but then increased significantly in 2013.
“You really don’t know how much compensation is involved until it vests,” Owens said, adding that compensation can suddenly bounce up in a given year because it vested but that his amount is not necessarily paid out.
The two highest-paid endowment executives at Harvard University reported total earnings of $6.6 million and $6.2 million, while Yale University's top two executives reported total earnings of $2.9 million and $2.1 million.
Members of the Ivy League and other colleges with large endowments have been criticized for providing generous bonuses to their endowment managers. Notably, an article appearing in Bloomberg this May criticized Golden's compensation. Golden said the article was misleading because it double counted deferred pay.
When asked about the controversy surrounding University endowment manager executives' salaries, principal at the consulting firm Compensia Mark Borges said academic institutions face a competitive market for skilled investment managers.
“[Schools] are constrained or driven by the market to compensate these people at a level that’s going to ensure that they will remain employed with them given the employment alternatives that they have out there, which would certainly compensate them at a fairly high level given their particular skill set,” Borges said.
Borges added that the compensation package is presumably designed with certain adjustments given an academic environment, which he speculates does not require the same stresses and expectations as within a private investment vehicle.
“I think $2 million viewed through any reasonable lens is substantial,” Golden said when asked why he did not pursue career options with higher salaries on Wall Street.He said he feels very fortunate for his job’s compensation and would not be interested in doing similar work if it did not involve generating funds for a good public cause.
The University’s 11.7 percent return on investments during the 2013 fiscal year meets the average for institutions with endowments over $1 billion according to data from over 800 colleges and universities processed by the National Association of College and University Business Officers. Harvard featured an 11.3 percent return rate. Last year, the average return nationwide stood at negative 0.3 percent.
“Companies have been emerging from the recession and corporate profits have gone up,” NACUBO Director of Research and Policy Analysis Kenneth Redd said in response to the dramatic increase. He added that the European market has been emerging from its recession, further increasing average profits.
Golden said that his team is excited about generating around 50 percent of the University’s budget, which enables excellent research and teaching, plus a financial aid program that is “second to none.”
Returns for the fiscal year of 2014 will be published this fall. Golden said they will be in the very high teens, but that markets are always unpredictable.
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