The financial industry generally compensates its employees very lucratively, and it is naïve to assume that HMC should behave in any other way. Unless Harvard keeps pace, its top-caliber financial professionals might seek other jobs, leaving positions to be filled by less talented individuals. This same class of alums protested the $107.5 million HMC paid its top officials in 2003. When Harvard proceeded to sharply reduce HMC executive compensation, CEO Jack R. Meyer left the company along with many other successful money managers. It should not be forgotten that, in Meyer’s 15-year tenure as CEO, the endowment grew from $4.8 billion to $25.9 billion. The experts needed to run HMC are entitled to the salaries the financial industry would otherwise afford them; risking their departure in a knee-jerk reaction to the recent economic crisis could—in the future—place Harvard’s endowment in an even worse position than the one it now occupies.
While HMC pays top managers large bonuses, in the long term those officials more than justify their compensations by generating impressive endowment returns. Between 1995 and 2005, for instance, Harvard’s endowment garnered an annualized return of no less than 15.9 percent, which amounts to much more than the sum total of officials’ compensation packages. It is also worthwhile to note that Harvard manages its endowment in-house, so HMC officials appear only on the surface to make much more than money managers at peer institutions. In reality, other schools may pay far more in management fees and expenses, even though they do not directly employ their investors.
While the endowment has fallen recently, so has the rest of the market. The overall performance of Harvard’s endowment is still laudable given the circumstances. In short, mismanagement cannot be blamed as the reason it fell as it did this fall, and HMC officials should be compensated at rates standard in the financial industry.