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$60 Million Fund Managers

By David Kaiser and Bill Strauss

We are two of nearly 1,500 alumni of the Harvard-Radcliffe Class of 1969, remembered as the class that struck and shut down the university, following the legendary occupation (and police “bust”) in University Hall. At the time, some of us viewed both the occupation and the Vietnam War that provoked it as excessive. And now, eleven members of our class are protesting another excess—the astronomical sums Harvard routinely pays its fund manager employees, and Harvard’s non-stop spiking of student tuition rates.

After fiscal year 2003, when we began our protest, the top six managers earned $110 million, including $35 million each for the top two. Harvard recently announced that based on the past fiscal year the top six will earn another $78.4 million, with $25 million each for the same top two. Pay at this level is excessive, unnecessary, inappropriate and contrary to the values of a great university—especially since tuition keeps increasing at a rate triple annual inflation, driving students into debt.

Put these sums in perspective. The fund manager payouts of the last two years amounted to three or four percent of Harvard’s entire $2.5 billion annual budget, and nine to twelve percent of its annual payout from its endowment—all going to just six people. Harvard is paying six people a sum equal to up to half the total tuition paid by the 6,500 students attending the College.

In 1990, Harvard raised some eyebrows by paying $1 million to one of its fund managers. Through the ’90s, those pay numbers drifted up and up, to the point where Harvard paid its fund managers colossal bonuses (over $100 million for the two-year period ending in mid-2002) even when the value of the endowment declined. These bonuses have been based on a committee-contrived formula, never publicly disclosed, that pays bonuses based on performance “benchmarks” tied to market indices, not actual gains in value. One financial consultant at McGill University wrote us last year arguing that at least one of Harvard’s benchmarks had been chosen because it was notoriously easy to beat. Bottom line: Being a fund manager at Harvard gives a person a near-lock on a multimillion dollar pay package—far easier than being the football coach at USC or Oklahoma, either of whom is paid one-twentieth as much as these fund managers for winning a game whose rules everyone knows.

The University argues that they are simply paying these managers “fair market value,” based upon the compensation reportedly earned by leading private hedge fund managers. But should the university’s endowment be treated like private fortunes or treated as a public trust? No one should accept the argument that it is necessary to pay anybody $25 million to $35 million per year as an incentive, or reward, for giving best efforts to Harvard, whether as a money manager, dean of students, professor of biology, cafeteria worker, security guard or anything else.

For whose benefit is Harvard’s huge endowment being managed? For the benefit of current and future generations of students? Or for the benefit of six fund managers? The money in Harvard’s endowment came from the generosity of many generations of alumni. When making contributions, alumni expect that the endowment will be held in trust for the education of future generations of Harvard students—not to create gigantic personal fortunes. That’s why one wealthy Harvard Medical School and School of Public Health alumnus, Dr. Terry M. Bennett, reacted to the bonuses by trying to retrieve a multi-million dollar gift to Harvard.

These fund manager payouts also send exactly the wrong signal to students who are deciding upon careers—and mark a dramatic symptom of unhealthy changes in American higher education since we went to college. When we entered Harvard in the fall of 1965, tuition was under $1800 annually, and room and board charges were only about $1000. Since then, adjusting for inflation, tuition has increased by 2.4 times, and room and board charges have roughly doubled. We don’t believe today’s students are getting an education twice as good. Despite recently increased financial aid for students whose families make $60,000 per year or less, most Harvard students are still placed under an unreasonable financial burden. Meanwhile, members of the Class of 1969 completed college without significant debts, and felt free to follow paths (teaching, Peace Corps, the arts) not dictated by financial pressures. Today’s students often leave graduate schools with debts in excess of $100,000, accumulated from undergraduate and graduate tuition. Does Harvard want to push its best-educated graduates only into the highest-paying fields, where many of them will inevitably use their education and brainpower to help the rich keep getting richer, leaving others to fend for themselves?

We do not want our generation, which in the 1960s trumpeted its concern for social and economic causes, to lead America into a new Gilded Age—but that’s what’s happening, with Harvard leading the way. When University President Lawrence H. Summers spoke at our 35th reunion last June, he defended the fund manager pay but added offhandedly that he would like to see more progressive taxation in the United States. The recent election results suggest that this won’t happen anytime soon. If, in the meantime, President Summers wants to reverse the increasing income inequality within America, he can begin at home.

If Harvard can afford to spend four percent of its total operating budget on six fund managers, it can afford to freeze (or roll back) tuition, replace loans with grants and forgive loan balances for recent graduates with modest incomes. If Harvard can pay two employees $120 million for managing money over two years, surely it can afford to pay higher wages to employees who clean the rooms, do the laundry and serve the food.

Harvard is a great and wealthy university. It should use its greatness and wealth to promote an ethic of service, not money.

David Kaiser ’69 is the author of five books, including American Tragedy (Harvard University Press). William Strauss ’69 is the author or co-author of nine books, including Generations (Quill) and Millennials Rising (Vintage).

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