Executive Compensation at the University of California: An Alternative View, by Patricia A. Pelfrey

The 2005-6 executive compensation controversy at the University of California has been explained as the result of a massive breach of compliance with the University’s compensation policies by the Office of the President (UCOP). For more than a decade, the explanation goes, UCOP failed to comply with its own compensation policies, embodied in the 1992-93 Principles for Review of Executive Compensation, and engaged in a longstanding pattern of secrecy and policy violations. This paper argues that both assertions are wrong. It begins by analyzing the issues leading to adoption of the Principles and presents the evidence that the procedures for implementing them were consistent with prevailing understandings of presidential authority and Regental intent. With several exceptions that will be noted, this remained the case throughout the administrations of UC presidents J. W. Peltason (1992-5) and Richard C. Atkinson (1995-2003). The situation changed as the result of two developments early in the tenure of President Robert C. Dynes (2003-2008). First, executive offers began to include benefits that were not traditionally employed at UC, and the Regents as a body were not asked to approve them. Second, the board was not informed about these benefits because a report mandated by the Principles, the Annual Report on Executive Compensation, was not submitted in 2004 or 2005. These were significant departures from the Principles, but they were limited to two years, 2003-2005. The idea that non-compliance with the Principles was endemic in UCOP stems from media portrayals of the controversy and from an audit commissioned by the Regents in response to the controversy, the April 2006 PricewaterhouseCoopers (PwC) report. The PwC report failed to acknowledge the extent to which the Principles had been followed in the decade after their approval, and its interpretation of that policy was so different from the way it had historically been understood as to constitute a re-interpretation. Many of the putative violations in the PwC report reflect this re-interpretation of the Principles, not evidence of a longstanding failure in compliance or a culture of secrecy in UCOP. This major lapse of institutional memory has had serious consequences for governance and the future role of the Office of the President.