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Executive compensation deserves the highest level of transparency

Several days ago, I wrote about executive compensation as it relates to Washtenaw Community College. Executive compensation is a significant issue, and it becomes more pressing as the institution faces a growing list of challenges.

A recent article in the Harvard Business Review discusses executive compensation, and its utility in performance evaluation. To be clear, I advocate for using established performance metrics to determine executive compensation – not only for the College President, but also for each Vice President (of any flavor) on staff.

Executives need to execute. The paycheck of the highest compensated employees should be firmly tied to outcomes. Those who do not produce should be shown the door. Right now, the college and the broader community do not have the resources to support passengers. And it appears as though WCC has more than its fair share of highly compensated passengers.

The Trustees recently missed an opportunity to be transparent about executive compensation for the President. In the June 2022 Board Meeting, the Trustees voted on the following recommendation, which Rose Bellanca herself submitted:

“That the Board of Trustees extends the appointment of Dr. Rose B. Bellanca as President and Chief Executive Officer to June 30, 2025, that her 2022-2023 salary be set at $249,000, that she receives a $10,000 increase to her annual housing allowance, and that the Chair of the Board of Trustees be authorized to sign a contract with Dr. Bellanca on behalf of the Board.

Setting aside the obvious conflict of interest – the president should not motion the Board to raise her own salary and benefits package – the motion states that her 2022-2023 salary be set at $249,000 and that she receive an additional $10,000 increase to her annual housing allowance.

What we pay ≠ what we get

As far as I know, her initial housing allowance was $15,000. If that’s still true, the Washtenaw County taxpayers are now on the hook for an additional $25,000 per year to pay to house the College’s highest compensated employee. (Is a salary of $250,000 per year not sufficient to cover one’s own housing costs? And do we really need to pay people to live in Ann Arbor?)

The problem with the motion is that according to the most recently filed Form 990 for the Washtenaw Community College Foundation, Rose Bellanca’s compensation in FY 2021 was $387,605. That’s about 50% higher than what the June motion showed. That also doesn’t reflect her compensation for FY 2022, which just ended.

The figure $387,605 is the combined total of Part VII 1a. boxes (E) Reportable Compensation and (F) Estimated Amount of Other Compensation from the Organization and Related Organizations.

The Form 990 showed Rose Bellanca’s reportable compensation as $340,803 and Other Compensation of $46,802.

So, how does the IRS define “Reportable Compensation?”

Glad you asked. The IRS defines reportable compensation as follows:

“Reportable compensation generally means compensation reported in Box 1 or 5 (whichever amount is greater) of the employee’s Form W-2, or in Box 1 of a non-employee’s Form 1099-NEC. Other compensation generally means compensation that is not reportable compensation.”

For reference, Box 1 of the W-2 form shows federal, taxable income for payments in the calendar year. The amount is calculated as YTD earnings minus pre-tax retirement and pre-tax benefit deductions plus taxable benefits (i.e., certain educational benefits). Box 5 shows the total wages and tips subject to the Medicare component of social security taxes.

Trustees need to be realistic about executive compensation

So, the $340,803 was Rose’s FY2021 salary ($215 505) plus bonuses and incentives ($125,298), minus any non-taxable benefits (retirement, healthcare, etc.) and certain taxable benefits. The non-reportable compensation included deferred compensation.

There’s a substantial difference between $215,505 salary reported in the FY 2021 Form 990 and $249,000 proposed salary reported in the FY 2023 salary motion.

Rose’s salary increased by 15.54% over three fiscal years. That’s far, far higher than the 6.1% cumulative increase that the independent staff received during the same period. The unions didn’t get a 15% raise, either. (She closed the Children’s Center allegedly because it was too expensive.) And that’s just the base pay increases; it doesn’t include the incentives.) It’s also 8 times higher per hour than the lowest compensated employee, assuming the bottom of the scale is $15 per hour. Including her bonus raises the differential to nearly 11 times.

So, why is the president’s base pay increase so much higher than the staff’s? (At a time when employees were being laid off?)

What exactly are the objectives tied to the incentives? They’re clearly not increasing enrollment or protecting the College’s assets. What is the total overall maximum incentive possible? Most importantly, why aren’t these being publicly reported? The public is paying for these incentives. We deserve to know what they are.

Photo Credit: Surat Lozowick, via Flickr