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  • YU Layoffs & The Fallibility of Laypersonomics

    by Steven I. Weiss

    With Yeshiva University laying off 60 employees, the suggestion has been raised that the school should have cut senior salaries to make up for the shortfall, as in the reporting of the Jewish Star:

    An angry YU employee who lost her job on Monday spoke to The Jewish Star on the condition that she not be identified. “They affect the little people, the people that make the university run,” she said. “The administration is the bread and butter of the university. Had all the senior staff taken a two percent cut it wouldn’t have been necessary to cut all these jobs for the people that aren’t making that much money… Richard Joel makes half a million dollars a year. Why didn’t he take a pay cut?”

    Interestingly, that approximately 2% number is also picked up by Jewlicious:

    Yesterday, Yeshiva University let go of closer to 120 people (if you include forced retirements)… in what many are saying is a massive screw up by the people on top. Rather than having the senior level staff take 2-5% paycuts, they decided to let go of al the “little people”, people who in fact make the university run. I wonder how the rabbis in the various departments are going to get stuff done without their trusty assistants. Only time will tell.

    Is this correct? Probably not: assuming the average laid-off employee had a total compensation package of $45,000 (likely a too-conservative assumption, but we’ll just go with that for lack of a better example), then the 60 employees cost YU $2.7 million annually.

    According to YU’s 2007 form 990 filing (available at Guidestar), the total compensation of “current officers, directors, key employees, etc.” was $3,965,502; of which that $2.7 million would be a very hefty 68%. So, had YU’s truly top people taken a 68% pay cut, and had all the laid-off been willing to work at total compensation packages of $45,000, these jobs could have been preserved.

    The numbers get very different from there when you try to plug in some actual compensation figures: salaries and wages of employees other than those listed above comprise a total of more than $270 million dollars. Given it’s been reported that these 60 staffers were 2.5% of YU’s workforce, that means the average employee not in that elite grouping is compensated to the tune of $112,772.39 per year. Obviously that includes a lot of extra-large salaries that raise the mean — such as the five medical school professors making $475,000 or more, as listed on page 10 of the form 990 — but those salaries are even more difficult to suggest could be cut, since professors are far more likely to get hired away by other universities if YU doesn’t compensate them competitively (in the area of administration, it’s hard to believe that President Richard Joel, whose religious outlook is part of what makes him fit to be YU’s president, will have to respond to offers from competing universities anytime soon; though other Jewish institutions could of course come calling).

    But even if there were 60 such professors making more than $475,000 per year (which there aren’t), and even if all the laid-off staff were willing to work for total compensation $45,000 per year (which they presumably aren’t), that’d mean the fictional 60 professors would actually have to donate nearly 10% of their salaries to make up for the shortfall. Plug in the likely mean for upper-tier salaries of well below $300,000, and it’s yet a greater chunk of their income that’s being called for.

    So, clearly, the idea that the most-compensated could save the laid-off with a simple haircut to their salaries is very distant from reality, and ignores the fact that much of operations at YU, like all non-profits, is actually funded by mega-donors and not small amounts of $10,000 here or there.

    But what’s more separated-from-reality about this idea is the notion that senior management of non-profits should essentially donate even 2% or more of their compensation to that same institution, just so it can keep people employed. Why would they do this? YU, like all non-profits, does not find ways to make profits and thus generate greater compensation for its employees when it does. A public company might freeze or cut high-level executive salaries to avoid layoffs, because those layoffs will mean less productivity, sales, and thus a smaller bonus pool/stock price for those in leadership. But at a non-profit, there are no such motivations.

    This kind of call is essentially saying to senior personnel at YU, “please, give me a hand-out, because I work for the same institution you do.” In doing so, they’re prioritizing themselves as worthy of a level of charity equivalent to their previous full-time salaries, when plenty of others affected by this economy are, at best, living off of government assistance and savings that don’t even approach the level of a full-time salary.

    It’s a selfish attitude that is surprisingly out of sync with the realities of charity and poverty in today’s world. Had those making these calls for hand-outs been more in touch with those realities while employed by an institution that ostensibly stresses a strong engagement with Jewish values of tzedakah, perhaps they’d be holding their tongues.

    February 11, 2009 | Read more Newsdesk posts. 4 Comments »

    Comments

    4 Comments »

    1. SIW, you are still ignoring the fact that YU’s top executives have not performed well this year, and surely should have some of their salaries trimmed. I have no problem with a President who makes the school hundreds of millions of dollars taking home a compensation package even more lavish than what RJ got. But at the same time we need to realize that the President who presides over a much greater loss should also be rewarded accordingly. While the 2% idea could probably save one or two jobs, it was obviously not a realistic solution for layoffs of 15%, which is the current goal. That having been said, the rhetoric, while perhaps wrong on this significant detail, does get RIGHT the fact that executive compensation should reflect current events, including the unmitigated string of disasters that Joel&co. have at least partial responsibility for. What I think is really scary is the idea that since everyone screwed up, we do not need to alter our compensation structures. While Joel made the same mistakes as many much smarter people (and outperformed many other institutions) he also made these mistakes all on his own and needs to take some of the blame. Some people would say it is misguided to worry about blame in such a disaster. While this is a fair point, I would counter that the looming and greater catastrophe is the total lack of accountability we are fostering by allowing the executive team of this school off the hook for their various quagmires. It would be refreshing to see both new leadership and some humility from the current team up in Belfer Hall.

      Comment by chakira — February 11, 2009 @ 11:51 am

    2. Chakira –

      On the suggestion that YU personnel who “have not performed well this year…surely should have some of their salaries trimmed,” whose job is performance-based? This is a non-profit institution, not a corporation. The only people directly generating revenues are fundraisers (and, to a degree, medical school professors like those mentioned above, in research grants and the like). These number a very few within Yeshiva University (the total employee costs under “Fundraising” on page 2 of the 990, around $9.57 million, are roughly 2.8% of the more than $345 million in employee compensation alone at YU, and an even smaller portion of the overall annual expenses, at roughly 1.6%).

      And, what’s more, you don’t know that these people have performed poorly this year. How is YU fundraising going in this downturn relative to other non-profits?

      As to those managing YU’s money, who could be said to have done a poor job over many years and not just this one, surely you have a point. And it can reasonably be suggested that anyone who invested money with Bernard Madoff should have their money-management responsibilities taken away — which has happened with J. Ezra Merkin and Madoff in the case of YU (whether others are also responsible is worth examining, and there are some common threads in the Madoff fiasco that make this seem like an examination that could bear fruit).

      Regarding Richard Joel’s compensation, I must admit I was surprised to see in the latest 990 that it’s close to double what his predecessor, R’ Dr. Normann Lamm, received. But my surprise is no reason to suggest he’s overpaid; he does seem to be making a salary equivalent to some in the Ivy Leagues the last time I checked, but that was a while ago and I can’t be sure at this point of his place in the University President Compensation Hierarchy. That’s its own issue, but certainly: 1) his main job isn’t money management, so the Madoff investment should likely not make him the first target of performance-based compensation cuts as a result; 2) fundraising is an important part of his job, but again there’s no reason to assume he’s done a bad job of it these days, and it’s certainly not large enough a part of his or any university president’s job to have triggered a commission-like bonus/salary structure (as opposed to corporate leaders, who are in the business of generating profits, and do receive bonuses and potentially pay cuts relative to department/company performance).

      Now, the idea that any person employed in any position should somehow have to justify their level of compensation relative to the value they deliver, is certainly a good one. You won’t see it at almost any non-profit any time soon, but certainly in the abstract it’s an idea worth promoting. But the degree to which that “should reflect current events,” as you say, must certainly be tempered by a realistic assessment of relative responsibilities for certain areas of performance, and a further assessment of how much those responsibilities comprise the overall job description of the person in question.

      In invoking the “What I think is really scary” point, you’re echoing a growing criticism of Main Street, Wall Street and government intervention that has combined to bring our country to its current economic catastrophe.

      The difference here is that, as I discussed earlier in this comment, it’s hard to say that, for example, Richard Joel’s job is a lot like Stanley O’Neill’s, Dick Fuld’s, or Ken Lewis’s. Or that YU or any non-profit has a lot of similar goals to Merrill Lynch, Lehman Brothers, or Bank of America.

      And certainly Joel’s salary alone, even with a performance cut of 10%, couldn’t have saved many jobs.

      If you want YU to be a business — which is how many might suggest it was run in the past — you’ll get a lot of bottom-line thinking to generate maximum surpluses with relative inattention to traditional institutional goals. And in that scenario, you might reasonably suggest that top-executive compensation track financial performance.

      But my guess is you don’t want a YU that runs that way, and neither does anyone else making these suggestions; they’re just unhappy to have lost their jobs, and you and others are unhappy that more money isn’t going to initiatives you prefer, none of which have any real correlation with the compensation of YU’s executive leadership.

      Comment by Steven I. Weiss — February 11, 2009 @ 12:29 pm

    3. SIW, welcome back to the world of blogging. Based on what I know, it seems that the money management and fundraising overlapped more than you imply, and that some of these decisions culiminated in the upper level of the school. These facts, assuming they were confirmed and clarified, would ultimately affect the calculus of the decision greatly. Beyond this, we do need a real accounting of the university’s endowment at this point since it is probably substantially diminished even from the dubious numbers that Joel has put out there. Many people agree that the valuation of assets in an illiquid market like our own must take this illiquidity into account. Obviously that would further damage the value of the endowment, which is probably much much lower than the 1.2 bln or so.
      The other thing I would like to add is that RJ has had non-Madoff related disasters. For instance, many people speak of extreme profligacy in the dibursement of funds for the so-called “Center for the Jewish Future” as a major failure. Other people point to the fiasco over the honors program. Joel has made notable strides in other areas, for sure, but the lack of transperency, for instance, in the CJF’s books, does not allow us to understand the magnitude of his failure (or success if the rumors are untrue– I do not know).
      A common theme which IS emerging from these digressions on the various quagmires of the RJ administration is the lack of information. If we want accountability in the end we need metrics. Many of the things I have pointed to are so shrouded in darkness that it is impossible to guage how badly Joel fucked up, or alternatively, how glorious the victories he declared have really been. One thing I think we can agree on is the need for much more disclosure on the part of YU and perhaps an independent audit.
      Finally, to digress slightly, while I am sympathetic to your point about the difference between for profit and not for profit compensation, I will say that you should not use this disntiction to eliminate all NFP accountability. Taking it one step further, you also totally ignore the level of symbolism. When his institution is being rent at the seams, it is unseemly for the President to not feel any of that pain. None of us want YU to run like a business, and part of going beyond the bare bones calculus of the business world might be feeling a bit of empathy and a recognizing, even if it has a minimal bottom line impact, the suffering of one’s employees. This institution is supposed to teach some values, isnt it?

      Comment by chakira — February 11, 2009 @ 3:20 pm

    4. [...] have a correlation with the way the economics of these things really works. This is suggestive of a general problem with lay-personomics, whereby people who make lots of money to do their jobs seem to be hated for that reason alone, and [...]

      Pingback by The Jewish Channel -- Connect With Your Culture. Jewish Television on Cable. — June 15, 2009 @ 9:04 am

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