Lisa Zhu | The benefits of the cost

Since last year, the Dow Jones Industrial Average dropped by almost 40 percent, while President Amy Gutmann's salary went up by that percentage. Gutmann's $1.1 million compensation trailed even higher figures paid to academic executives like Columbia's Lee Bollinger ($1.4 million) and NYU's John Sexton ($1.3 million), according to The Chronicle of Higher Education.

Looking at these numbers, it's easy for people to liken university presidents to overpaid corporate CEOs. In reality though, paying someone $1 million to improve the quality of college education is very different from paying someone hundreds of millions of dollars to fiddle with subprime mortgages and credit default swaps. In fact, Penn itself can be likened to a $5 billion business, in terms of the scale and complexity of its operations.

As a university president, "You have to provide world-class education and health care [and] manage the urban environment of Philadelphia," said Hay Group spokesman C.J. Bolster, a consultant hired to advise on executive pay. "There's an enormous amount of complexity to Gutmann's job, and the Trustees expect a lot." In contrast, Suffolk University paid its president a whopping $2.8 million (largely retirement benefits) this past year, though the school has no medical system and fewer than half the number of students Penn does.

In other words, Gutmann's salary is justified, given the extraordinary responsibility and complexity her position holds.

Furthermore, this particular salary figure has certainly been revised down in the face of an economic crisis. For instance, Gutmann recently donated $100,000 (almost 10 percent of her total compensation) back to Penn. Additionally, this year's salary "decisions were made not in this current time period," said Penn spokeswoman Lori Doyle. Instead, the data used for deciding university executive compensation was from July 2006 to June 2007 - prior to the economic meltdown. And yesterday, Gutmann announced her pledge to forgo an increase in her base salary for next year.

Moreover, high though it may be, Gutmann's $1.1 million salary might just be a good thing for academia (though Penn students who shell out $45,000 a year in tuition may disagree). To clarify, a common misconception in the higher-education industry is that the ferocity of a would-be professor's craving for knowledge is matched only by the emptiness of his or her bank account. In an ideal world, this wouldn't matter - sheer passion for research and teaching would override any financial incentives. But too often, students who delight in research and learning during their time in school shun long-term academia in favor of higher-paying jobs. President Gutmann's large compensation package could sway research-minded students by providing assurance that more lucrative rewards do exist in academia, even if they're usually for scholars who take on more administrative roles.

Indeed, large, complex corporations often justify their executives' large compensation packages by claiming that they're necessary in order to retain the best talent. In that case, shouldn't large, complex nonprofit organizations like Penn be able to attract smart, accomplished individuals to further their more socially minded missions?

Of course, there is a tremendous difference between the amount that President Gutmann receives, and the $650 million paid to Steve Jobs (the highest-earning CEO) in 2006. In fact, "the people who run universities are also those who could run high-profile companies, and $1.1 million is actually very little compared to what she could get on the outside world," said Management professor Iwan Barankay.

Therefore, in order for universities to secure the most competent, most intelligent leaders, they must be able to offer something more than just prestige - especially if the school is as large and as complex as Penn. So if attracting someone capable of managing Penn's operations means spending the equivalent of 0.02 percent of our endowment toward Gutmann's paycheck, then so be it.

Lisa Zhu is a Wharton and College senior from Cherry Hill, N.J., and United Minorities Council chairwoman. Her e-mail is zhu@dailypennsylvanian.com. Zhu-ology appears every Thursday.

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