It was disheartening to learn of Cornell’s former Chief Investment Officer James Walsh’s $420,000 bonus (on top of a base salary of $468,643) in fiscal year 2009 — the same term that saw the University’s endowment drop from $5.4 billion to $4 billion, or about 26 percent.
To be clear, there is nothing wrong with paying someone for a job well done. In fact, incentives linked to performance can be a productive way to increase accountability and reward those who go above and beyond. But it is apparent that Walsh’s 2009 performance would not qualify as a “job well done.” Even if there were circumstances out of his control, a nearly 100 percent bonus in a year when the endowment fell by one-quarter is unwarranted — especially when those funds could have gone to worthier causes, such as financial aid or avoiding departmental budget cuts. For reference, Walsh’s single-year bonus could have paid for more than 10 years of undergraduate tuition (2.5 full scholarships) or one years’ pay for the three Theater, Film and Dance department members laid off in July.
To be fair, Walsh’s salary was far from the highest among university financial managers. In 2006, at least six of Harvard’s top investment officers made more than $5 million, and their compensation packages have been as high as $35 million. However, Harvard’s endowment is five times as large as Cornell’s, so a straight one-to-one comparison is not quite apt.
But it is the underlying philosophy of this bonus that is perhaps the most troubling. After the endowment took a 26 percent hit in 2009, the University began a process of “reimagining” itself. This process centered on Cornell’s attempt to reevaluate its operating practices in all areas such that it could still be a world-class institution while running on a smaller budget. Cornell’s strategy needs to align with its vision, but Walsh’s outlandish bonus contradicts the core principles of the “reimagining” process. Wealth does not determine the quality or prestige of an institution. Rather, that is determined by its academic programs, research and students it produces. To cut back on departments such as Math and Theater, Film, and Dance in order to budget compensation bonuses is unethical and detrimental to Cornell’s quality as an institute of higher education.
The explanation that the bonus falls in line with certain “industry benchmarks” is a poor excuse. If Cornell hopes to maintain its prestige while operating under tighter budget constraints, it will need to stop subscribing to the status quo. It will need to forget a mindset in which these sorts of bonuses are normal, and arrive at a far more sustainable standard for compensation.
Clarification: This editorial relied on incorrect information in the Aug. 31 news story originally titled "As Endowment Plummeted, Chief Investment Officer Received $400K Bonus." The story erroneously reported that Chief Investment Officer James Walsh received $420,000 in "bonus and incentive compensation" in fiscal year 2009 (July 1, 2008 through June 30, 2009), the same period during which the University's endowment lost about 26 percent of its value. In fact, this incentive bonus was paid to Walsh during calendar year 2008 and reported on the University's 990 tax form as such. Although the University's endowment lost about 27 percent of its value in the last six months of calendar year 2008, Walsh's incentive payment in calendar year 2008 was based exclusively on his performance during calendar year 2007, according to Anne Snell, director of compensation services.
This editorial relied on incorrect information to reach conclusions about the propriety of Walsh's compensation, and regrets the error.