In 2004, the head of Harvard University’s $20 billion endowment fund faced pressure to change compensation plan for top investment managers since in 2003, a total of $107.5 million were received by top five managers of Harvard Management Company while the two most successful earn over $34 million each. The move brought a lot of protests from the Alumni who threaten to withhold gifts since the compensation endowment exceeds the salaries of the faculty members and administrators. In Harvard, managers’ salaries and bonuses exceed the compensation paid by any other school. Harvard endowment has increased from $4.7 billion to $22.6 billion over 4 year’s period. Over previous 10 years, the fund had average return of 16.1 percent which is above 12.5 percent return of 25 largest endowments. Endowments would have been one-half of 2004, if average returns were produced by the fund during the period. Moreover, the school’s large endowments cover 72 percent of undergraduate financial aid. The compensation was cap while the head and his team exit.
Mr. Meyor, the head and his team contributed to the increase of funds over 4 years period by $17.9 billion and this is an achievement and a sign of good performance. The increase in endowment is used to assist students from poor families to raise school fees since no tuition fees is paid by students from families earning less than $60,000 and also it is being used for expansion of the faculty and the facilities.
The fact that the compensation endowment exceeds even salaries of faculty members and the administrators makes it expensive in paying fees by students especially when the tuition fees hikes. In addition, the Alumni have threatened to withhold gifts from the school and this might discourage donations to the school, if the issue could not be solved.
A case study: Lavish Pay at Harvard.pdf.