Harvard University’s endowment, the largest in the world, had the worst performance of any of the eight Ivy League schools in 2013. Its chief executive officer at the time, Jane Mendillo, got the biggest raise.
That’s in keeping with the findings of a Bloomberg survey of 62 U.S. college endowments that found compensation often doesn’t square with investment performance. Only half of the managers in the top quartile for pay achieved returns for the three years ending in 2013 that were also in the top 25 percent.
At the University of Texas, Bruce Zimmerman, the highest- paid head of a public university endowment, got a 27 percent bump that year, bringing his pay to $2.5 million. His three-year performance of 9.2 percent ranks in the bottom quarter. Part of his compensation included a bonus deferred from 2012, when the $20.4 billion fund lost money. State lawmakers criticized the endowment for awarding bonuses when returns plummeted in 2009.
“It’s alarming,” said Ge Bai, an accounting professor at Washington and Lee University in Lexington, Virginia, who studies compensation. “It doesn’t make sense to pay someone multimillion dollars when their returns are trailing their peers.”
Colleges are paying their endowment managers more because of the increasing complexity of the job and the need to attract talent from the even richer precincts of Wall Street, according to consultants who help institutions set pay. Nineteen endowment chiefs made $1 million or more in 2013, the Bloomberg survey found, and their raises averaged 14 percent. Eleven collected more than $2 million.
Talent Competition
“You want to attract top talent, and you have to pay for it,” said Jeffrey Tenenbaum, who runs the nonprofit group at law firm Venable LLP in Washington. “It’s probably the only area in higher education apart from Division I football coaches, where you compete directly against the for-profit world for talent.”
Harvard doubled compensation for Mendillo to $9.6 million in 2013, almost nine times what it paid its president, Drew Faust. It was the biggest paycheck and the biggest increase at any of the 62 endowments that employed a chief investment officer for at least part of the year and disclosed compensation data. Her $8.3 million performance bonus was also by far the largest, amounting to about 90 percent of her pay.
The Harvard fund returned 11.3 percent in 2013, last in the Ivy League. Its three-year average, which endowments often use to determine bonuses, was 10.5 percent, ranking 31st among the schools surveyed. In its 2013 annual report, Harvard said the return that year “exceeded our benchmark by a healthy 223 basis points,” or more than 2 percent.
‘Substandard Benchmarks’