[Update: I hadn’t realized that Johns Hopkins was such an outlier when writing this. I followed up with some stats from other universities in this comment responding to Andrew.]
If you want some insight into why American academics are losing their mind, it helps to understand how American research is funded. The U.S. classifies universities into tiers by how much research the do (a “college” is like a university but doesn’t have graduate programs). The R1 universities are the research universities you’ve heard of like Stanford and Johns Hopkins and Columbia and University of Michigan. What you may not realize is that a huge chunk of their operating budget is derived from grants.
Here’s a link to the Johns Hopkins Annual Financial Report, 2023. I chose Hopkins because it’s been coming up with a lot of our job candidates. The breakdown of the budget is on pages 4 and 5. The bottom line is that the university, a non-profit organization, made a $414M “profit.” But let’s break down where the money is coming in and out.
Page 4: Operating Revenue and Operating Expenses
First note that the numbers are in thousands of U.S. dollars. The total income is $7.8B. Let’s break that down.
“Tuition” brings in only $830M. Universities don’t collect full tuition—they give out a lot of financial aid. And they just don’t have that many students.
“Grants, contracts, etc.” bring in $2.3B (excluding the APL).
“Applied Physics Laboratory” brings in another $2.3B (yes, same number). They mince words in the intro, but it’s basically a defense contractor if you read the bullet items, whose mission is, quite frankly, frightening (click through for details of their “warfighting” support). The U.S. sadly entangles its defense budget and university budgets.
“Contributions” from individuals, foundations and corporations make up another $210M. I wonder how the great whale Bloomberg’s $1B donation is accounted—I’m guessing this is lottery-style reporting of $1B, not net-present value of $1B.
“Net assets released from restrictions” of $110M, which means previously restricted donations become available to be spent.
“Clinical services,” i.e., the Hopkins hospital system, brought in $890M net!!! More than tuition, but less than grants.
“Reimbursements from affiliates” of $760M is basically things affiliated with Hopkins like a broader network of hospitals and research institutions for services rendered. Yikes. Add that to clinical services and you have a hospital network making way more money than tuition.
“Other revenues” of $190M. No clue as to what this is.
“Endowment payout” of $425M. U.S. non-profit law requires institutions to pay out a fraction of their endowment every year. My guess is that they’d pay out zero if they could, since university presidents are largely incentivized around two things: raising the endowment and raising U.S. News and World Report rankings.
“Auxiliary expense” income of $105M from things like bookstores, housing, and dining. They’re actually turning a huge “profit” on this stuff! Who knew?
“Maryland State aid” of $65M. Basically a drop in the bucket.
“Investment return” of $73M. I don’t know if this is the endowment or other investments.
Page 5: Other changes in net assets with and without donor restrictions
This is mostly investment stuff related to pensions, and investment return. There is one item of note, the contributions.
“Contributions” totalled $2.1B! This is what it sounds like, but the contributions are typically restricted (i.e., they come with strings attached, typically building a building with someone’s name on it or funding some tenure line). And yet I’m guessing they still pester their alumni with annual “donate to Hopkins” letters. I know both Michigan State and Edinburgh never seem to miss a move with their begging.
Overhead
The government is threatening or maybe already has (hard to keep up) reduced overhead rates from 60% to 15% (that means if you apply for $1 of direct costs, you also apply for $0.60 of overhead. The plan will remove 3/4 of the overhead revenue, which for Hopkins was $460M, which means a revenue reduction of $355M.
The much bigger effect will be what’s happening to Columbia with just cuts across the board in NIH and NSF funding. If that hits Hopkins, it’s going to hurt, because that’s a large part of their $2.3B research grant budget.
Was 2023 an outlier?
No. It’s just more of the same in 2024. If you follow the link it has 2023/2024 both. In 2024, the bottom-line “profit” was up to $2.6B!!!
Panic setting in?
Despite this recent success (I didn’t find 2024) they’re panicking and reportedly laying of 2000 employees. If you click through to the article, you’ll realize that’s 250 people “cut” in the U.S. and 1900 internationally, mostly working on international health aid, with another 200 locals “furloughed” (I don’t know exactly what that means in this context).
BOTTOM LINE: JOHNS HOPKINS 2023 BUDGET
- Research grants and overhead: $2.3B
- Defense contracting: $2.3B
- Health care and other services: $1.6B
- Tuition: $841M
- Endowment payout: $425M
- Bookstores, housing, dining: $105M
- State aid: $64M
Operating “profit”: $410M
Bottom-line “profit”: $2.3B
Which leaves us with the question of what one calls a “profit” at a non-profit? “Changes in Net Assets” is the term of art used in the reports.
Bob,
Thanks for sharing. It’s good to have some numbers. You can go to the UOMatters website to see many examples of how the employees at the University of Oregon have to struggle to figure out what management is doing. And in this space we’ve already complained about misallocation of funds by administrators at the University of Nevada, the University of Florida, and, ummm, Columbia University. And, speaking of Columbia, nobody ever got to the bottom of how those fake U.S. News numbers got submitted.
On the other hand, institutions are complicated. I think it would a mistake to note the existence of corruption among university administrators (who are paid much more, in real dollars than they used to be) and conclude that various proposed cuts (which I don’t think would address any of the above-listed problems) are a good idea.
I don’t understand the details of that financial report and what exactly got spent where.
Where is everyone’s getting numbers on admin pay over time? I’m also curious about professor pay over time and whether there’s been a rising pay gap, say between lower-level admins and higher-level ones and between junior faculty and full professors. I have a hard time judging myself. Inflation has been about 150% since I started as a junior faculty member and I haven’t stayed at junior faculty level over that time. It does feel like there are more admins around these days than there were in the 1980s.
Bob:
In my above comment I linked to a post on the increasing variance in pay within job categories over time. Regarding your question about levels of pay over time, Paul Campos has a recent post pithily titled, “College professors are paid less now than they were in 1970, while upper administrator salaries have increased many times over.”
The current drama at the University of Oregon (which is, I think, better run than most similar places, or at least not worse) is a likely faculty strike. I keep thinking I should write about this, but it’s hard to know where to start! Nominally the dispute is about salary, but I think it’s more about these broader trends of ever-expanding administration, etc. I’m traveling back from a conference now — great, but exhausting — perhaps insights will come when staring out the plane window.
If you need some reading for the traveling back, or for some other time or situation, and you are not familiar with them here are two sources that might be interesting and relevant in light of your comment and the topic:
Binswanger, M. (2014). Excellence by nonsense: The competition for publications in modern science.
In: S. Bartling & S. Friesike (Eds.), Opening Science (pp. 49-72). Springer
McFarlane, D. A. (2013). The University lost: The meaning of the University. Interchange, 44, 153-168
People like to complain about how much university administrators get paid. But consider a large company that has net revenues of, say, $5 billion per year. How much would it be reasonable for the CEO and the top 4 or 5 executives of that company to get paid? This feels like the right comparison for the university leaders of large R1s.
From a financial point of view, it is best to think of private universities like JHU as a large hospital system and a large defense contractor with a small educational unit. The undergraduate part of the overall institution really is quite small. Because of the implications this can create for actually running the place, some institutions (e.g. Vanderbilt) explicitly split their med school/hospital system into a different legal entity than the “university”.
Anon:
I can’t speak for other people, but I don’t “like to complain about how much university administrators get paid.” I’m not happy about it; I’m just reporting the facts, that the pay of university administrators has increased a lot over the past few decades, much more than the pay of other employees at the university (coaches and some other exceptions aside). Pay for executives in private companies also has increase a lot over the past few decades, so that’s not a static comparison. You could just as well compare to government officials who are in charge of large budgets and are subject to public scrutiny but don’t get million-dollar paychecks.
Andrew –
I wonder if there isn’t typically a double-standard, where a salary of $X seems more outrageous for a university (with a budget of $Y) administrator than for a CEO for a company with a similar budget.
Maybe there are valid reasons for that, but I think probably the old “no skin in the game” logic comes into play, based on what I think is a largely fallacious belief that a profit motive drives more accountability and greater efficiency in the private sector.
Don’t you believe that Musk is accountable for his $56 Billion pay package? That’s private sector pay. According to the Chronicle of Higher Education, the highest paid public college president in 2023 was Renu Khator at the University of Houston, at $1.9 million. The Chronicle often reports a variety of administrative salaries and I believe the average for all college presidents is around $250K. It is worth noting that at big colleges, it is often the football coach who is the highest paid employee.
Making useful comparisons between college administrator and for-profit executives is bound to be a messy business. Comparing college administrators and college faculty (and tenure track college faculty with adjuncts) is probably a bit more straightforward. In addition, there is plenty of data in IPEDs over how colleges spend their money. It has always been disturbing that faculty salaries are usually less than half of the total.
That was sort of my point. These universities are huge businesses with a clever tax dodge in education. What’s always felt strange to me is that universities take in billions of taxpayer dollars and then lock up the IP they develop and collect royalties—at least when Bell Labs was part of AT&T and it was controlled by congress, they weren’t allowed to exploit their inventions and look what that got us (transistors and information theory in 1948—those were the days). I don’t even know how real estate is factored in, but Stanford and NYU are like the British monarchy with its fortune in real estate (Columbia has a lot of property, too, but it’s mostly uptown and way uptown).
I also agree that the university president salaries seem low compared to industry. But then so are faculty salaries, at least in tech, despite CS faculty salaries going way up.
Bob:
I personally think it’s ridiculous to say that the education function of Johns Hopkins, or Columbia, or U. Michigan, or whatever, is “a clever tax dodge.” Education is central to the function of the university. You can argue that there is administrative bloat, that you disagree with the university conducting expensive external research or having professional sports teams, you could argue that these are inappropriate appendages–but the education is what makes it a university. Also, various things that might bother you are related to education. For example, student housing is relevant to the students, even though it is not an instructional line in the budget. Universities could shut down their student housing and require all students to find housing in the private market; I don’t see how this would directly improve the education. Lots of the research being done at universities, especially at hospitals, doesn’t directly involve undergrads, but graduate education is part of a university’s function too; also students can benefit from taking classes from faculty such as myself who work on research.
I think it’s fair to say that undergraduate and graduate education are a small part of the budgets of many prominent universities; that doesn’t make education “a clever tax dodge.”
Having taught mostly at small universities, I think you need to distinguish between the R1s and the large number of teaching oriented schools. You won’t find the same level of administrative bloat, you won’t find the research/grant factories, and you won’t find famous professors who may teach 1 graduate course per year (exaggerated – but the standard load at most of these “other” schools is 4 courses per semester). I can assure you that education is the focus at many of these places – I’m not attesting the quality of what they do, but they at least are serious about that being their primary function. And the financial side looks entirely different – the vast majority of revenues are tuition and fees.
Agreeing with Dale. The title of the post is about “American Universities”, but the example is a single extreme outlier. I also teach and research at a state R2 research university. The budget details described above are nothing at all close to what we have and don’t reflect numbers at probably >95% of all other “research universities” in the US, including many R1s. Not just in amounts, but in ratios. At our school and most others, nearly all of the funding is from tuition dollars. Indirects are considered rounding errors. The Hopkins data are interesting for sure, but they are unique. When combined with the misleading title, this post reminds me of most news articles about universities where a single event at an Ivy school is taken to reflect all of “higher education”.
Dale, Jeff:
In my comment, I wrote “many prominent universities.”
Andrew – Understood. I was referring to Bob’s original post and the title at the beginning, not to your comment. I read Dale’s comment and assumed he was also responding to the original post. Sorry for the confusion.
The education is indeed what makes it a university and leads to its 501(C)3 tax-empt status. For Johns Hopkins, education generates a small fraction of its revenue and accounts for a small fraction if its costs. It’s literally a small fraction of the univeristy’s business operations. It’s only a third of the size of their defense contractor, for example.
I hadn’t realized when posting this just how much of an outlier Hopkins was. At Columbia, tuition is 25% of the operating revenue. The Columbia financial statement doesn’t include the hospitals, so it looks like they’ve broken that into a separate business. At Michigan State, tution is about 33% of the budget. At Case-Western, tuition’s about 40% of the budget—like Columbia, they broke out their medical operations somewhere else. At Carnegie-Mellon, tuition is nearly 50% of the operating income. When I was there (late 80s to mid 90s), I had thought it was closer to 1/3, but I may be misremembering.
I hadn’t realized how much of an outlier Hopkins was. I should’ve checked other universities. I just did and posted some of the findings in this response to Andrew above:
https://statmodeling.stat.columbia.edu/2025/03/20/how-is-an-american-research-university-funded/#comment-2394521
Bob, I think breaking out the hospital makes sense in some sense but then leaving it in makes sense in some sense. It’s particularly true you should leave it in if the hospital is a teaching hospital and has a med school attached. Also the med school often does a lot of the research with NIH funding.
@Bob “The Columbia financial statement doesn’t include the hospitals, so it looks like they’ve broken that into a separate business.”
Johns Hopkins University (JHU) *also* breaks most of its hospitals into a separate business: Johns Hopkins Health Systems (JHHS). “JHHS is incorporated and governed separately from the University.”
If you consider JHHS as “part” of Hopkins then you’d have to say that they get around 8.5 billion from clinical services alone (if I’m reading their financial statement right: https://hscrc.maryland.gov/Documents/Strong%20als%20Folder/Audited%20Financials%20-%20ar-rev/FY%202024/JHHS%20FS%202024%20%20FY2024%20AFS.pdf )
I’ve worked with both JHU and JHHS (often called JHMI internally, for reasons I don’t understand) via NIMH subawards and they really are distinct entities albeit in close partnership.
So, JHU may be even more of an extreme outlier than you think.
Johns Hopkins seems like an unusual case because they also have their overseas operation for USAID for which they had to lay off over 1000 employees working abroad.
Other Revenues are
“include revenues from royalties and patents, medical and professional
reimbursements, joint ventures, and other miscellaneous activities. Such revenues are recognized
when goods or services are provided to customers.”
which shows just how many businesses a major university operates, of which contrary to public understanding undergraduate education may be a relatively small relative amount. And JH is atypical in that public entertainment ,i.e. athletics is a small amount of its activities.
The other important thing to note is that public perception, like most public perception is wrong in that based on public commentary most of the public thinks federal revenues received by major universities are gifts to the rich higher education entities. In fact these are revenues from contracts to perform research and services for various federal agencies and departments which is only natural since the intellectual resources to do such work is housed in major universities. If the Johns Hopkins of the world do not do this work, it won’t be done.
“the intellectual resources to do such work is housed in major universities”
” If the Johns Hopkins of the world do not do this work, it won’t be done.”
It has nothing to do with the intellectual resources (the labor). Those are extremely fluid and could go anywhere. It has everything to do with the buildings, CT scanners, MRI machines, HPC clusters, sequencing facilities, particle accelerators, mouse husbandry facilities, and whatnot. Further it also has to do with the prestigious names, and the bureaucratic resources to apply for and jump through the hoops of administering the considerable red tape requirement to get federal grants in bulk.
Universities love to get grants to build physical infrastructure because it becomes a sunk cost the feds will try to utilize for decades by favoring their university for future grants, and universities can charge enormous rent on those assets. Perhaps 55% of grants goes to either direct overhead payments or captured rent of facilities (ie. Monopoly priced Mouse husbandry costs or time on telescopes or RNA sequencing or etc paid by investigators out of their grants)
The Anarchist critique of capitalism, that it is a system in which a “landed gentry” with “title” to productive assets collect rent off the ability to utilize police violence to prevent laborers who dont pay that rent from utilizing the productive assets created by others goes over 100% for universities. In some ways they are the purest of capitalists.
“Perhaps 55% of grants goes to either direct overhead payments or captured rent of facilities ”
If this is in reference to indirect costs, the number is too high. NIH has stated that average indirect costs are about 28%. Most private universities charge more compared to public universities. For NIH grants, the indirect costs are added to the investigator’s grant. If Ivy League U has a indirect cost charge of 70%, a successful grant recipient of a $100K grant ends up costing NIH $170K. I’m sympathetic to cutting this amount and making it standard across all grant awards irrespective of the university. That being said, the Administration’s 15% limit on indirect costs is too low, somewhere between 25-35% might be more reasonable.
It’s not just indirects (which are more like 65% at universities I know of, USC, UC system etc). It’s also that much of the direct costs go back to the university as rent on their facilities. If you have 300 mouse cages at $2/day/cage or need time on HPC clusters or have a confocal microscope core you need to use or whatever.
In response to Daniel Lakeland, here is the link to the UC System’s calculation of indirect costs: https://osr.ucsf.edu/uc-rates It’s higher than I thought as I was relying on a 2014 NIH presentation on the topic (the last time I was interested in this topic). It is short of what Daniel notes which seems to be what schools can charge for industry sponsored research. Interesting for industry sponsored clinical trials the rate is lower, presumably because of the competition to become a trial site It still begs the question as to what an appropriate cost rate ought to be.
Please don’t get me wrong, I’m all in favor of a robustly funded Federal research effort. In my volunteer life, I’m deeply involved in this issue.
If indirects are 55% of the base budget then they would represent about a third of the budget for the grant. 65% would be 40% of the budget.
Alan, I went to your link, then scrolled down and clicked the Federally negotiated rate page, and looked at on campus currently
https://osr.ucsf.edu/federally-negotiated-rates
The overhead rate is currently 64% according to the chart.
My 55% rough estimate went like this: 65% overhead and 25% of direct cost captured
(.65+.25)/(1.65) = .545
So of the grant money paid to the university 55% ish goes to the university in “rent” and 45% ish goes to paying people who do the work or for supplies and things.
All of this is back of envelope so subject to some variation. But rent is a huge part of federal grants clearly.
Daniel again you are misunderstanding what overhead makes up in a grant (more like 40%) and that includes HR, Accounting, Contract management, ethics compliance, electricity, the library and restrooms. Absolutely, sure, other stuff as well.
If Columbia or JHU lost all its grant funding it would leave them with a lot of vacant real estate that no longer have their maintenance, heating and cooling costs covered. Let’s say they lay everyone off and 40% of the grants are overhead (that would be for a 65% overhead rate), for the 400 million that is 180 million of costs that will not be covered by not buying supplies or paying people. Those costs will still be there for the near term, though maybe in the long run they can rent out the space or sell it. In some cases where tenured faculty and others are having some or all of their salaries covered that is also not recoverable by cutting, but that is probably a small fraction.
How do you know this about the “public understanding” and “public perception” and what “most of the public thinks”?
Most universities aren’t “major universities” much involved getting much revenues from royalties and patents. And “public entertainment” is “a small amount of its activities” of most universities.
I confess to using ‘casual empiricism’ to reach a conclusion about ‘public understanding’ and ‘public perception’. The evidence is the commentary on blogs, forums and websites from the public about the Columbia U and U Penn cancellations of government contracts. The universal theme of the commentary is that government should not be giving money to rich, private universities who should be providing the funding from their own resources. The MAGA base hates the Ivy Leaguers for this reason, hence the appeal of Trump’s action to his base. Disbelieve this at your peril;.
Agree that most universities are not the huge institutions that dominate the industry, but the large ones that dominate higher education are where the government contracts go. As for providing entertainment what does anyone think is more important at, say Ohio State University, the football team or the med school or the research activity?
Finally, the comment that the major universities are just Medical Centers and Contract/Consulting Organizations with small education centers attached is right on. The JH numbers show this.
Thanks Bob, this is extremely relevant for my claims yesterday about the mental model we should have for Universities, and a claim that *quality* grad and undergraduate education is like single digit percentages of what large universities do. (Especially because only a fraction of what we teach these days is actually quality education. Take a look at reddit r/AskStatistics to get a sense of what current students are learning about research and methods)
Independently of the question of the quality of the education, it should be noted that universities are the hubs for huge amounts of economic activity. A lot of the “non-quality education” money provides income for a lot of people, not only faculty but in the trades, service industries, surrounding businesses, etc. Of course, it could be argued that they effectively exploit a lot of those workers, and often displace a lot of residences through gentrification, but when you get appointed as the education czar, don’t forget the impact on all those people as you do a DOGE on higher ed.
Uses reddit to complain about what students are learning about research and methods. Oh, the irony!
Thanks Bob. Just adding a few pertinent details:
1. The operating profit (~ $400 million) comes from total revenues of $8-9 billion minus operating expenses of $8-8.5 billion.
2. The operating expenses do not have many details but compensation (including benefits) is roughly 60% of the revenues. It’s a human-driven business after all. They lumped together admin, research, academic and even the hospital staff expenses. If they need to reduce expenses, the easiest line to reduce is this one.
3. In the notes section, we learn that the tuition revenue is almost all from graduate programs (70%).
“The U.S. sadly entangles its defense budget and university budgets.”
What’s “sad” about that? Where do you think science at US universities would be without the “defense budget”?
To categorize APL as a “a defense contractor” is more than a little disingenuous.
“To categorize APL as a “a defense contractor” is more than a little disingenuous.”
Now I’m curious what you know that I don’t, because while the claim is a bold one, it comports with my own experiences.
I worked with the ARLs at two different large public universities. These are for-profit public/private ventures that mostly work on defense. The university ARLs link “beltway” defense companies like Raytheon and Northrop Grumman to the DoD.
Having a university in between provides a veneer of objectivity that can be very useful to bureaucrats. I will give an example.
A novel (and clever!) chemical propulsion system was developed at a university ARL. After years of development and deployment, my forensic group discovered some troubling evidence that the system was operating differently than anticipated under the actual moisture conditions, as opposed to the predicted moisture conditions. The government was deeply invested by this point and it was immediately obvious that there was no cheap fix, so the leaders very much wanted the question to go away. The prime defense contractor wanted it to go away just as much, but arguments from them would not hold much weight because no one would trust them to be objective. Meanwhile, the government lacked in-house experts with adequate credentials (read: PhDs). So the issue got volleyed back to the ARL for resolution.
A few months later I am on distribution for a coauthored report from tenured metallurgy and chemistry professors moonlighting at the ARL. You know where this is going. Our concerns were dismissed. While I no doubt knew less metallurgy and chemistry than these guys, it was abundantly clear that they did not spend enough time genuinely trying to figure out what we were claiming. The report was slapdash.
The program lasted about two more years before spectacularly failing due to the moisture issue, leaving taxpayers out a few billion with nothing to show. It probably hit the beltway contractor pretty hard as well. The ARL was just fine I’m sure.
Postscript: Years later, the propulsion system came back redesigned to mitigate the moisture issue. The new design was developed by the same ARL.
MP says, “To categorize APL as a ‘a defense contractor’ is more than a little disingenuous.” MP—I’m curious how you would describe an operation which states its mission as follows:
https://www.jhuapl.edu/work/mission-areas
I guess you could add “aerospace” and “security” and “offense” to defense.
I just looked at their first job listing for AI and it requires a Top Secret security clearance:
https://careers.jhuapl.edu/jobs/55664?lang=en-us
To be fair, the second job listing only required Secret. And just to give you a flavor, here’s a description of that second job,
Some academics don’t want to contribute to foreign adventurism. And we would have more science funding had the bloated military not diverted so much of it.
Interesting to see these numbers in context. On the one hand, students may complain about overpriced textbooks and being forced into cramped, shared bedrooms. On the other hand, cutting these corners allows universities to boos their income by *checks notes* less than 2%.
Adede:
Regarding “forced into cramped, shared bedrooms,” one of the complaints you’ll sometimes hear about universities is that the student facilities are too fancy. So in this dimension it seems that universities can never avoid criticism, no matter what they do.
Reminds me of student evals. Some students complain there is too much homework while others complain there should be more homework.
I don’t know how people can honestly make the argument that like $2000 per person with 2 people to a bedroom, 10 or 12 people to 2 bathroom stalls, no kitchen, and no living room is “too fancy.” I’m not even sure it’s legal for most long term rentals. Best I can think of is the shared amenities you might not use, like a gym membership, a pool, etc. But that really doesn’t explain the cost
Somebody:
Here’s one of many news stories on the topic. This sort of thing was all over the news media for awhile.
Attracting students with this stuff is literal lottery logic. I’m sure it works because lotteries make a lot of money and prospective students are 16 years old. But arguing from stuff like this that student housing is too luxurious is like saying casinos are too generous to gamblers. I’ve spent some time in the Columbia dorm rooms, I know what they’re like for your average undergrad.
My son visited a dozen colleges before picking one. My wife and I accompanied him on these. Some college dorms were nicer than most of the hotels I stay in. Others not so much. There was a noticeable difference between the private and public colleges, striking really. One college I taught in (8 years ago) was private but had very old dorms (even without air conditioning). They had a provost who rejected the idea that applicants choice of college could be impacted by the dorms. A decade of declining enrollment seems to have put that notion to bed, as the competition’s living facilities get ever better while my (former) college’s only addressed deferred maintenance. We celebrated finally air conditioning the dorms while others were building leisure parks. To be sure, there is a wide variation across colleges, but I’d say the private 4 year liberal arts colleges generally have quite attractive dorms (can’t really even call them dorms).
Would you actually live in a hotel room for 8 months out of a year?
Here’s one of the fancier colleges I’ve visited.
https://students.duke.edu/living/housing/first-year-housing/living-on-east-campus/
You will generally be in a double bedroom, and all bathrooms are shared. The room costs, to the extent that a breakdown means anything 5,455.00 per 4 month semester.
https://finance.duke.edu/bursar/TuitionFees/tuition/
I would absolutely not pay $1400 a month for single-room-occupancy housing, shared with someone else, using a bathroom down the hall. Would you pay $1400 a month to share a single room with a stranger for 4 months without even a bathroom for just the two of you? I hear other adults talk about extravagant student housing all the time and I seriously don’t know what world they’re living in.
I’ve seen these: https://reslife.washu.edu/living-at-washu/residential-life-facilities/ and they are quite nice. Would I live in a hotel for 8 months of the year? How about a nursing home? These are 18 year olds and presumably there for a good education. I’m pretty sure the university makes money on housing (most do), but that is one way to keep net tuition down.
I don’t understand what this criticism is supposed to mean. At universities I’m aware of, dorm housing costs for a shared room (+ board) are about $15,000 per year, on the same scale as tuition. What notes are you checking?
This is always the argument for never cutting anything. Oh X feature is “only” 2% of the budget! It won’t help to cut that!
How many things are “only” 2%? My parents’ entire life was declining to buy what they wanted and focusing on what they needed.
Andrew: The CEO of every Fortunte 500 company can attest that no large organization can “avoid criticism”. It’s not a defense for wasting resources.
Reading the numbers like this makes me want the baseball card version
Very good post!! One of the big revenue lines for many R1 universities is the medical school and allied hospitals, HMO, urgent care centers etc, Johns Hopkins, the subject of the post, is big in this area as the number suggests. However, I wonder if some of its activities are adequately reported. Several years ago, Hopkins bought both Sibley Hospital in DC and Suburban Hospital in Bethesda. They also have a local outpatient facility in Bethesda that provides a lot of services. They have a number of affiliated physician practices. George Washington med school has a number of primary and urgent care facilities in our area as well. In Brimingham Alabama, the medical school and affiliated hospitals are the largest employer in the city which is why the conservative Senator Katie Britt is reacting against possible Medicaid cuts which would have a dramatic impact on hospital income.
Being the president of a major research university is a difficult task and I don’t think their salaries are out of line. Someone above mentioned that the football coach at many schools is the highest paid employee. While true, this comes out of the athletic department budget that is mainly funded by TV money, ticket sales, and other marketing income. i think the share of money coming directly from the university’s budget is low (this applies mainly to Division I schools; Ivy League schools such as Columbia have minimal revenue in this regard. Congrats to their women’s team that won a play in game last night to make it into the main bracket of the NCAA Tournament).
Yes, the coaching salaries are paid out of separate entity/corporation.
But, if it’s really a separate entity, then that corporation owes the university licensing fees. My university is due millions every year from the athletic corporation for use of the Kansas Jayhawk, and the use of the University of Kansas name, rent on the stadiums, arenas, and practice facilities.
I will wait patiently for the costs associated with “separate entity” to be paid to the university which provides all of the credibility and entry into sporting competitions. These costs are substantial, and they are unpaid.
Alan stated: “Several years ago, Hopkins bought both Sibley Hospital in DC and Suburban Hospital in Bethesda.”
I vaguely remember the Sibley/JHU deal. My faint memory is that Sibley was slowly sinking and wanted help. The WaPo article liked to by Wikipedia states:
Under the long-expected arrangement, which Sibley’s board approved Wednesday and which does not involve any exchange of money, the 328-bed hospital in Northwest Washington will keep its name, management and physician staff.
No Sibley assets will be diverted to Hopkins, officials said. Day-to-day operations are not expected to change, although Sibley is likely to gain comprehensive cancer facilities, a new women’s health-care program, expanded geriatric services and greater access to clinical trials.
An earlier story in the Post stated that “there would be no financial exchange” when JHU acquired Suburban.
There’s something about the economics of hospitals that makes stand-alone hospitals hard to thrive.
Many people are comparing universities to companies for the purposes of compensation. Whatever you conclude about what the compensation of univ admins should be, a company and a university are not remotely comparable for the purposes of compensation or anything else.
1) in most companies leadership compensation is mostly in stock and options. For options the value of the stock must rise for the compensation to be worth anything. If the compensation is directly in stock, the value of the compensation can fall as well as rise. The value of stocks fluctuates. The value of paychecks is fixed.
2) there are widely accepted metrics for the “performance” of a company – most commonly stock price profit or revenue. There is no widely accepted metric for the performance of universities.
3) Corporate executives can be and frequently are removed for poor performance. University executives are almost never removed for any reason, let alone poor performance. This pretty much extends across the board in universities.
4) The value of a company is driven by the immediate or near term value of the products it offers. some – very few – companies continually rise in value over the long term because they continually offer products that the public wants, but most companies plateau or shrink after a period of success. OTOH, no one has the slightest clue how to value a university and in fact it’s well established that much of their “product” has virtually no measurable value at all.
Is what Bob calls “bottom line profit” analogous to “cash flow” in a corporate financial statement? This can be higher or lower than “profit” in any given year: the university can get paid in one year for expenditures made in a previous or future year.
#1 is partially true (but $compensation is still large)
#2: there are metrics but many studies have found little relationship between performance and pay for top execs.
#3: many university presidents have been removed – and I think more so lately. The average tenure for presidents has been declining.
#4: there is one metric I can think of – how many new students does the institution attract each year? That is actually the market speaking.
I don’t see why it is inappropriate to compare university presidents with CEOs. Of course there are many differences, but there are also commonalities. Comparing doesn’t mean they are the same or should be compensated the same. But the heart of statistics is (I believe this was a Tufte quote): “compared to what?” What would you compare a university president to?
For some documentation of trends, try https://www.goodcourse.co/post/navigating-higher-educations-accelerating-leadership-crisis-in-the-us.
Anonymous –
I gotta say, each of your bullets seem transparently skewed. For example, execs frequently make corporate decisions not to advance the long term bottom line of sustainable business plans, but to juice stock prices because shares are part of their compensation package.
Some tidbits from a Google search:
A study of S&P 500 firms from 2000–2015 found that while CEO pay tracked stock returns moderately well (correlation around 0.3–0.4), the correlation with ROA or operating income was much lower (0.1–0.2). (scholar.harvard.edu/bebchuk.
“CEO Pay and Firm Performance”)
Jensen and Murphy (1990) estimated that for every $1,000 increase in firm value, CEO pay increased by only about $3.25, suggesting a minimal link. (Performance Pay and Top-Management Incentives.” Journal of Political Economy, vol. 98, no. 2, 1990, pp. 225–264.)
only about 15% of S&P 1500 firms in 2020 used long-term non-stock metrics as a primary incentive (paygovernance.com)
a 2017 study of U.S. manufacturing firms showed that CEOs with high stock option grants were 25% more likely to cut R&D spending—a key driver of long-term innovation—to hit quarterly earnings targets, boosting stock prices but hurting future competitiveness (nber.com: Graham Harvey Rajgopal 2017 stock options R&D)
There’s actually kind of a parallel where college administrators make decisions to increase the college’s rankings but not necessarily because of an increase in the quality of the “product” (of you think education is the product).
Joshua:
I gotta say, if you were familiar with the investing landscape, you’d know that the market routinely punishes META’s stock price for it’s massive “long term” investments in VR technology. “Investors” – whoever they are – really don’t like it when Zuck announces that he’s spilling another $5B on VR. Investors want products that generate profit now and in the near term. They **do not** want huge investments in technologies that may never materialize into profitable businesses.
In other words, you’ve chosen a few select references that fly in the face of the massively overwhelming evidence on display every single minute of every single day in the business world. Every aspect of the modern market acknowledges that “long-term” investing is very high risk. Very few large companies are *ever* successful at generating and deploying new technologies derived from your “long term” investing. Successful companies do their “long term” investing by shopping in the startup market for the most promising companies – a method that critics decry as “anti-competitive.”
In fact the entire premise for ETFs is that the smart strategy is *not* to invest “long term” in individual companies because of the constant threat that new businesses and new technologies will emerge and outflank any given company and destroy its value. It’s *not possible* to predict when or how this will occur, nor which companies will succeeed or fail. Thus ETF investors automatically adjust their risk and mitigate this uncertainty on a *daily basis* – decreasing their stakes in declining companies and increasing their stakes in rising companies. They do not invest “long term” in individual companies.
Why should CEOs do any different? Many important technological and market developments are unforeseable. META, GOOGL and the Mag7 are among the few companies that have the luxury of spending billions on “long term” off-the-wall bets. The wisest strategy – and what investors demand, as shown by META’s example – is to exploit what is certain now and invest most heavily in the near future. That’s what most modern CEOs do, because that generates the greatest return for investors.
I gotta say, this is one strange post (I wish you Anonymi would start identifying yourselves, as with Anonymous1, Anonymous2, etc.). Meta is a “select” references you made. Has the market punished Tesla in the way you claim for Meta? Are oil companies a good example of firms that don’t make long-term investments and instead choose to buy small startups? Your entire post makes no sense to me. Markets demonstrate both rationality and irrationality, and CEO performance evaluation easily shows both of these. Plenty of examples can be provided for the wisdom or folly of long-term investing. Certainly long term investments are risky – and sometimes markets punish those and sometimes they are rewarded. The only point I can find in your post is a belief that somehow whatever happens in markets is rational. Yet CEOs routinely have compensation packages that appear to have little relationship with performance. Many telecom mergers seemed more like ego exercises of the CEO than sensible investments. And, what about Apple? A number of long-term investments that did not pay off, as well as the market rewarding risky investments in new products without using acquisition as a strategy. As Aswath Damodaran has pointed out (https://aswathdamodaran.blogspot.com/2011/12/do-markets-punish-long-term-thinking.html), there are myriad examples where long term bets have either been rewarded or punished by financial markets. That is perhaps the most rational evidence you can find – that neither generalization is accurate. Beyond that, it is unclear how that is relevant to CEO compensation.
One of the key distinctions in American higher education is that between “tuition driven” institutions and other institutions. That said, the way they net out the tuition income is interesting and maybe misleading for some people. In other words, they are taking in a lot more from the undergraduates than it looks like. Undergraduate nominal tuition at many of these schools is below cost per student, with the endowment payout largely covering the gap between tuition and “real cost.” Masters degree programs are cash cows because students don’t get much in the way of aid and the tuition is pegged more closely to the true cost. Professional programs like law, medicine and business basically break even.
At places that have hospitals and big grant footprints of course there are huge expenses but also huge revenues.
Also, if there is net money at the end of the year that would usually be used to reimburse the endowment payout, to provide a cushion for the new fiscal year before the tuition etc starts flowing in, or combined with the following year budget for large projects. If they are including grants then that is also people preparing to ask for no cost extensions.
Profit means that the money would be going to the owners or stock holders as individuals. In the case of non profits, its just a surplus. In this case a relatively small one.
I’m surprised that more faculty don’t understand the budgeting at their institutions. Being at a tuition-driven, public institution I know that what the Governor does and what enrollments look like will have a huge impact.