Trustees | Trusteeship

Amid University Uncertainty, U of L Leaders Cashed Out Big Perks

WFPL   |  February 16, 2017 by Kate Howard

All eyes were on the University of Louisville and its foundation last summer.

Its president was ousted and its finances scrutinized. Both boards were hamstrung by turnover and uncertainty. University trustees were publicly threatening to sue the foundation.

Meanwhile, some of the university’s highest-paid employees were making a run on the bank.

They quietly withdrew millions in compensation promised to them over the previous decade, with more than $5.3 million paid out just in the week former U of L president James Ramsey stepped down as foundation head.

But none of that money was ever actually set aside, a practice the current foundation leaders and an expert in the field say is atypical. So in the last 12 months, in the midst of crisis and a regime change looming, the foundation paid out about $9 million from its cash accounts to settle up.

All the deferred compensation for staffers came on top of their six-figure salaries, with the exception of a small portion of Ramsey’s. Though most of his $4.5 million total was additional pay, he voluntarily deferred about $600,000 from his regular paycheck.

These latest revelations come amid the foundation’s harried efforts to examine how much money was spent or promised by the previous regime.

Keith Sherman, new interim executive director of the foundation, said the roughly $700 million endowment is big enough to sidestep any major impact from tapping its cash reserves — although he acknowledged it meant less money to invest, and it might have posed a problem if another big expense arose.

“Because a lot of the development work has been finished or put on hold, the need to have significant expenditures hasn’t arisen,” Sherman said. “If those things came up we would have to liquidate, potentially.”

It’s not new compensation; big deferred compensation payments have been reported in recent years for a handful of leaders, on the foundation’s tax returns and in the media.

But as new foundation leaders weigh how to go forward with the deferred compensation plan, a review of documents shows the true cost of the program exceeds what’s been reported. Records also show that the foundation has spent at least $8.2 million to pay taxes for university staffers, and one new six-figure payment vested last month in the midst of a staff review of the program.

Michael Poliakoff, president of the American Council of Trustees and Alumni, said it appeared the foundation wasn’t keeping track of how much compensation was being awarded — or how the whole plan would look to the public or faculty.

“The University of Louisville’s story, if it tells us nothing else, tells us that good governance matters,” Poliakoff said. “Accountability and transparency are the bedrock on which public trust is built. If they’re not there, things are going to go badly awry.”

Run On The Bank

The payments from cash accounts occurred as spending policies were hotly debated and the endowment was under close watch.

Ramsey took with him $3.55 million, which includes contributions and compounded interest. (He cashed out an additional nearly $1 million earlier.) Former provost Shirley Willihnganz cashed out about $2.1 million last year (and cashed out an additional $300,000 previously). Kathleen Smith, Ramsey’s top deputy at the school and the foundation, withdrew $700,000 last summer, records show (and another $760,000 earlier).

Employees withdrew another $2.8 million in the months before and after Ramsey’s departure: Donald Miller, director of the James Graham Brown Cancer Center, withdrew $2.15 million last summer. Kevin Miller, executive senior associate athletic director, withdrew about $430,000. Becky Simpson, who recently retired as senior associate vice president of communications and marketing, withdrew $181,000. (Simpson is a member of Louisville Public Media’s Board of Directors.)

Sherman said he and the new foundation board put a freeze on new enrollments and payments, aside from those already promised, while they review the plan.

Diane Medley, a U of L trustee who became foundation board chair in January, said she hopes the board will remain flexible to use deferred compensation in the future, albeit with changes.

“We see them as a retention tool for valued employees and that’s how we would use them, if we use them in the future,” Medley said.

Interim President’s Pay Under Scrutiny

The foundation remains on the hook for almost $600,000 in vested compensation that participants haven’t cashed out yet — including a new $100,000 payment to interim president Gregory Postel that vested immediately on Jan 1.

Postel was named interim president in January. Months before Ramsey was ousted last July, he named Postel as the interim executive director for health affairs. In an employment letter, he offered Postel deferred compensation in an unspecified amount that would vest each year that Postel stays in the interim role.

Plan documents don’t lay out any guidelines on how much a person should be awarded or when the money should vest. Sherman said Postel’s promised payment amount is $100,000 — a figure Ramsey or staff arrived at individually, like the rest of the compensation packages.

Postel’s $950,000 salary already included a $100,000 annual stipend for the interim executive vice president role.

Postel’s pay as interim president will be considered at the board of trustees meeting Thursday. But much appears to have already changed under the board appointed last month by Gov. Matt Bevin. U of L spokesman John Karman said the board chairman has been already re-negotiating Postel’s contract.

“The proposal the trustees will consider [Thursday] will have him making less than he’s currently making for working two jobs,” Karman said.

Deferred Comp Payouts Graciously Grossed Up

Records show the foundation spent at least $20 million for its deferred compensation plan to benefit 10 people since 2003.

It allocated more than $12 million in awards and investment returns — then spent another $8.2 million just to pay those staffers’ taxes since 2012. More than $3 million of that was for Ramsey’s taxes alone.

The foundation wasn’t just covering the same amount of tax the staffers would’ve paid. They were actually grossing up several times, Sherman said, because the gross-up payments themselves are taxable benefits — which triggers new taxes the foundation vowed to shield employees from.

The actual taxes vary depending on the employee’s tax bracket, but as an example: If the foundation paid the IRS $35,000 to cover taxes on a $100,000 payment, that $35,000 might be taxed another $10,000. That would be taxed again, perhaps another $3,000, which would be taxed again for a few hundred, and so on. So while the staffer might have paid $35,000 in tax, the foundation is actually paying well over $48,000 to ensure the payment remains tax-free.

Lyn Harper, a Washington, D.C. compensation consultant, said her advice to universities is to make deferred compensation as basic and transparent as possible — and to avoid the bad optics that follow tax gross-ups and secret payments.

“We strongly suggest that boards think about how this information will be received and actually have a strategy around it,” Harper said. “If they can’t stand up and say, ‘We are proud we are paying this amount and it meets our compensation philosophy’… perhaps they shouldn’t make those decisions.”

Medley, who is a certified public accountant, said aspects of the plan like tax gross-ups and immediate vesting are not typical in her experience. She also prefers to see at least some money set aside as it’s vested, even if the plan is considered unfunded.

“We will engage experts in the field to make sure as we move forward, it’s using best practice to make sure it’s the best plan and doesn’t impose on the employee,” Medley said.


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