Author Topic: A couple easy fixes to CEO Pay and college costs  (Read 2085 times)

boilermaker75

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Re: A couple easy fixes to CEO Pay and college costs
« Reply #10 on: September 02, 2018, 02:38:10 PM »
When I started at Purdue as an undergraduate in 1971, the in-state tuition was $350 per semester, that would be $2,168 in today’s dollars. Currently the in-state tuition is around $6,000 per semester for engineering. (Tuition is around $5,000 per semester and some programs have additional fees.) This is almost three times greater than inflation and this is with no tuition increases the last 7 years.

https://www.purdue.edu/newsroom/releases/2018/Q2/purdue-president-daniels-announces-unprecedented-7th-straight-year-of-tuition-freeze.html

(An aside, Indiana had, still does, a program of reduced tuition for children of disabled veterans. My dad was a disabled WW II vet. So, my tuition was $90 per semester; my BSEE cost be $720 in tuition.)

A culprit in the faster than inflation rise has been university rankings. US News began ranking universities in 1983. For universities that are members of the American Association of Universities, the top 62 research universities in the US, rankings have little to do with teaching. They are mainly based on research. Research funding per faculty member, number of Ph.D.s graduated per year per faculty member, number of faculty that are members of the NAE, etc.

To raise your ranking, or even just to maintain, you have to pour more dollars into research related functions, not teaching, each year. So there has been an arms race created by these rankings.

And where do the dollars come from that pay the salaries of faculty to do research? Undergraduate tuition.  (Today it is not uncommon for star faculty to be making well over $300,000 per year with many not ever teaching undergraduates.) Much of the increased cost of undergrads going to college is the cost of the ever-greater research programs, and star faculty salaries, needed to maintain, or increase, rankings.

I suspect as part of this arms race is faculty teach fewer classes per year. This means a larger faculty and each faculty member has more time to devote to research.


Edit: Also universities want to move in, and stay in, the Association of American Universities, which is based on amount of research. Univ. of Nebraska and Syracuse University were removed in 2011. I know Indiana University is worried so they are trying to start an engineering program in hopes of more research funding.
« Last Edit: September 02, 2018, 02:53:41 PM by boilermaker75 »


DTEJD1997

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Re: A couple easy fixes to CEO Pay and college costs
« Reply #11 on: September 02, 2018, 02:59:45 PM »

Eric, I think your recent encounters with attorneys is affecting your feelings towards them. I don't blame you for that though!


My Sacramento divorce attorney charges a crippling $450 per hour.  It is the going rate.

Eric:

That very well may be.  I am also sorry to hear that you even the need the services of a divorce attorney...

HOWEVER, I am going to guess that you are going to a top 10% divorce attorney...perhaps even a top 1% divorce attorney.  Sure, those guys MIGHT make plenty of money, but they are far removed from the average.

Also, just because somebody charges $450 does not necessarily mean that they bill 2,000 hours in a year.

I have an attorney friend who does primarily business law.  He is tied in to a wealthy ethnic minority in the metro area.  He does not charge $450/hour, but he bills at a good rate for the area....He has a few problems though.

A). He has to maintain an office.  Nothing outrageous, almost modest...but it is in a better part of town.  In the office he needs a phone & internet.  He also needs Westlaw/Lexis access.  He also needs state court rulings (books & updates).

B). He needs to maintain professional liability insurance

C). He needs to ADVERTISE in the ethnic newspapers.

His business is also variable.  Some months are good, some months are TERRIBLE.  When he pays for his necessary expenses...he is NOT making that good of a living.  In fact, he is making a TERRIBLE return on his time & investment.  He would have been WAY better off getting a "regular" job.

A lot of attorneys who can sometimes bill decent rates, get killed on the overhead & downtime.


Munger_Disciple

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Re: A couple easy fixes to CEO Pay and college costs
« Reply #12 on: September 02, 2018, 03:14:32 PM »
Quote
It is a very bi-nomial distribution....The top makes good money...very little in the middle AND HORDES of attorneys making very little $.

My experience with business lawyers is similar to Ericopoly's. Most of the decent attorneys charge way too much per hour and seem to be getting away with it. If most lawyers are poor, why is this happening? 

LC

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Re: A couple easy fixes to CEO Pay and college costs
« Reply #13 on: September 02, 2018, 04:00:10 PM »
Lots of people go into law, make barely any cash, and eventually leave the profession.

BLS stats:

Quick Facts: Lawyers
2017 Median Pay   $119,250 per year
$57.33 per hour
Typical Entry-Level Education   Doctoral or professional degree
Work Experience in a Related Occupation   None
On-the-job Training   None
Number of Jobs, 2016   792,500
Job Outlook, 2016-26   8% (As fast as average)
Employment Change, 2016-26   65,000
"Lethargy bordering on sloth remains the cornerstone of our investment style."
----------------------------------------------------------------------------------------
brk.b | cash

doc75

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Re: A couple easy fixes to CEO Pay and college costs
« Reply #14 on: September 02, 2018, 05:00:11 PM »
About the top 10% or so of attorneys make OK money....but the vast majority do not.  It is a very bi-nomial distribution....The top makes good money...very little in the middle AND HORDES of attorneys making very little $.

Just an FYI, and not intended to distract from your point:  You mean bimodal.  A binomial distribution is what you get when you flip a (possibly biased) coin and count the number of heads.

Cigarbutt

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Re: A couple easy fixes to CEO Pay and college costs
« Reply #15 on: September 02, 2018, 05:51:57 PM »
Perhaps there are plenty of holes with the couple approaches here but why couldn't the government do something along the lines of this?

1) To help control college costs, the government could link college costs to inflation. In order to qualify for any government assistance/loans colleges could not increase total price of education above the level of inflation. If they violate this, they lose funding for a certain amount of time.

-----)

In the US (the comments do not reflect the conditions in my area as American fellow members could not believe the tuition fees paid for my children going through higher education), tuition fees are reported to have grown at much higher rates than inflation, often typically as follows:
https://www.businessinsider.com/this-chart-shows-college-tuition-growth-since-1980-2016-8

However, digging deeper, reported tuition fees, as reported, are gross numbers. When you look at net tuition fees (net of grants and tax benefits, without taking into account student debt), the long-term trends, in the main, show much lower cost inflation and, in under many scenarios, flat trends. Higher education enrollment has increased but public funding per enrollee has decreased. However, the net result is that the headline numbers significantly inflate the "real" median underlying net trend. The underlying reasons behind the huge increase in student debt are controversial but I humbly submit that this may be an issue that maybe should be discussed around the kitchen table or perhaps complemented by a short course on basic financial literacy in high school.

Despite the mitigating factor described above, higher education is expensive in the US and, for many, increasingly more so. I understand that "explanations" for this situation can be grouped under two headings: "revenue" issues and "cost" issues.
The revenue side (Bowen) is related to the concept that higher education costs will be driven by the revenue the institution can raise per student unit as part of a political process. IMO, the big contributors here are mission drift, curriculum bloat, the notion that higher "productivity" and cost control will automatically result in lower quality in education (similar concept appears in healthcare) and especially the fact that the pressure felt by institutions concerning decreased direct public funding has been more than compensated by increased implicit and explicit federal government support through debt to students, with a net result of more and more applicants.
The cost side (Baumol) which I referred to some months ago when discussing a healthcare topic has to do with the fact that the relatively high costs allocated to tuition and education have to do with the high standards of living that the US has achieved. Like other related sectors where educated labor and services are involved and where international out-sourcing is difficult or impossible, think healthcare and others (contrary to manufacturing for instance), "productivity" measures have not had meaningful impacts on costs.

IMO, like in healthcare, culture change (like a company restructuring) is necessary based on better measurement of outcomes, a focus on the cost/quality mission and efficient integration of technology (ie online learning) if the goal is to match rising higher education costs with the long term trajectory of the underlying economy. Another issue with political ramifications since "public" involvement will continue to be part of the picture.

(-----

2) Tie executive compensation to median workers' compensation. The IRS could basically say that if executive pay is more than 100x or 150x (or whatever) then none of the expenses associated with salaries for any employee is tax deducible. Sure, you run the risk of companies laying people off but I think the more likely scenario is to stop over paying executives.

I think almost everyone, regardless of political party, thinks college costs are crazy and so is executive pay.

-----)

Another tough issue. I would agree that, despite noble intentions and personal interest when reading proxys, mandatory disclosure of top executive pay has been a major cause of relative envy and outbidding. CEOs can be fired and tenure duration has come down but I think that at least part of the solution is to correlate downside to the huge upside that top executives have been able to reap. For example, clawback of previous compensation in relation to poor results or even personal financial responsibility (to a certain degree) in the event of a bankruptcy-related event. Also, the structure of compensation can be tailored to long term value creation.

(-----

Separate comment related to legal costs in the US: The number of lawyers per capita is off the chart in terms of international comparison and that tends to create a lot of competition across the spectrum. Given the tendency to reward according to talent (meritocracy vs inequality), some lawyers tend to do very well.
« Last Edit: September 02, 2018, 05:54:32 PM by Cigarbutt »

Schwab711

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Re: A couple easy fixes to CEO Pay and college costs
« Reply #16 on: September 02, 2018, 06:06:51 PM »
Good post boilermaker.

For CEO/exec pay, the issue is it's actually cheaper to pay employees with stock options/RSUs than cash. The reason is there's a excise tax on salaries greater than $1 million for your five highest-paid employees. Thus bonuses went from 10%-25% to > 100%. The bonus is more tax effective if given as contingent equity so it's often paid in that form. Much of executive pay outpacing average workers is just tax incentives.

Get rid of stock options as compensation (there's no reason only specific owners should pay executive wages) and count total compensation towards the excise tax and the spread will decrease.
« Last Edit: September 02, 2018, 06:09:32 PM by Schwab711 »

doc75

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Re: A couple easy fixes to CEO Pay and college costs
« Reply #17 on: September 02, 2018, 06:20:33 PM »
And where do the dollars come from that pay the salaries of faculty to do research? Undergraduate tuition.  (Today it is not uncommon for star faculty to be making well over $300,000 per year with many not ever teaching undergraduates.) Much of the increased cost of undergrads going to college is the cost of the ever-greater research programs, and star faculty salaries, needed to maintain, or increase, rankings.

I suspect as part of this arms race is faculty teach fewer classes per year. This means a larger faculty and each faculty member has more time to devote to research.

If someone is a big enough star to be earning $300k+, then I sure as hell hope they're not teaching many undergraduate courses.  That would be pretty nuts.  FWIW here's some US faculty compensation info from 2011:

https://www.chronicle.com/article/Distribution-of-Average/127041

Canadian schools must publish lists of all employees making $100k or more.    $300k in Canada remains very highly unusual for faculty ranks, and faculty making this much are generally in finance / business.  Excluding a couple people in medicine and pseudo-administrative positions like Deans, the top science/engineering professor at University of Toronto makes $291k.   

https://www.sunshineliststats.com/?page=1&orderby=salary&provinceid=9&year=2018&n=University%20of%20Toronto

Faculty teach fewer courses than they did in the past, but there are now far more students in an average class and far greater demands put on the faculty with respect to their teaching. Universities have responded by shifting a lot of undergraduate teaching to their growing ranks of grad students, post-docs, full-time lecturers, and part-time instructors.  None of these people cost as much as faculty, so I'm not so sure to what degree the rise in tuition has been precipitated by fewer courses being taught by faculty. 

Aside from advancement in rank, the per-annum increase in faculty salary at my school has been around 1.75% since 2006.  Over that time there has been a huge change in the amount of focus on research, no decrease in teaching, and tuition has gone up by well over 3% per year.   Much of the tuition fee increase in Canada is a result of a long decline in per-capita government grants, which has transferred a bigger slice of university operating costs onto students.  There also seems to have been an explosion in administrative costs but I don't have good data on that.

There have been a number of studies into academic costs, so there's likely no need to guess about the various reasons behind cost escalations.  I haven't spent much time digging into it.



DTEJD1997

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Re: A couple easy fixes to CEO Pay and college costs
« Reply #18 on: September 02, 2018, 07:31:24 PM »
About the top 10% or so of attorneys make OK money....but the vast majority do not.  It is a very bi-nomial distribution....The top makes good money...very little in the middle AND HORDES of attorneys making very little $.

Just an FYI, and not intended to distract from your point:  You mean bimodal.  A binomial distribution is what you get when you flip a (possibly biased) coin and count the number of heads.

Yes, thank you for pointing that out.  You are correct.


Deepdive

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Re: A couple easy fixes to CEO Pay and college costs
« Reply #19 on: September 02, 2018, 09:02:12 PM »
I heard a story that a bathroom replacement that consist of urinals, toilets, showers, sinks, tile work, for a frat house of 30-40 kids requires a budget of $400-500k.  It took the alumni association years of fund raising.  They mentioned that a similar job would not have cost more than $50k if done by the alumni.  Union labor is required and needs to be approved by the college.  There are also 3-5 administrative sign offs.  The funds needs to be ready by Jan in order to do the work during the summer when the students are away.  I think this story is very telling of the "fat" that is in the college system.