1) Why was the Committee on Compensation formed?
The Board of Trustees continues to review best practices with respect to all of its governance responsibilities. After review of practices at other peer institutions and input from third party experts, it was determined that a standing committee on compensation would enhance oversight over this critical area.
2) When was the Compensation Committee formed?
At the board’s meeting on Nov. 22, 2013.
3) Was this committee created as a result of the Freeh recommendations?
No, the creation of a standing committee on compensation was not one of the specific recommendations contained in the Freeh Report.
4) How did the board make executive compensation decisions in the past, and how will the formation of this committee change that process?
The Board of Trustees historically used an informal compensation council, comprising the chair; the vice chair; the chair of the Committee on Finance and Business; and the immediate past chair to review and approve decisions on executive compensation. Compensation decisions were made based on past practice, competitive salary information from peer institutions, and consideration of the experience and past performance of the individual involved.
The new standing committee on compensation will formalize many existing informal processes and practices and add new processes and practices that are expected to enhance the oversight of compensation issues.
5) How were the members of this committee selected?
According to section 3.03(f)(vii) of the bylaws:
The committee on compensation shall consist of the vice chair of the Board of Trustees; the immediate past chair of the Board of Trustees; the chair of the Committee on Finance, Business and Capital Planning; the chair of the Subcommittee on Human Resources; and one at-large member appointed by the Chair of the Board of Trustees.
Strumpf was selected by the chair of the board as the at-large member based on her finance and business acumen.
6) What positions are within the committee’s purview, and how will the committee be involved in the hiring process for those positions?
Under its operating guidelines, the committee’s responsibilities vary depending upon an executive’s place within a five-tier structure.
- The committee will recommend the compensation and employment terms of the president (tier I). The president is the only individual in tier I.
- The committee will approve the compensation and employment terms of individuals in tiers II and IIA. The positions in these tiers include: executive vice president and provost; senior vice president for finance and business; senior vice president for health affairs and CEO and dean of the College of Medicine; senior vice president for development and alumni relations; vice president and general counsel; athletic director; men's football coach; men’s basketball coach; and women's basketball coach.
- The committee will be kept informed by the University president as appropriate regarding compensation or changes in compensation strategy for executives in tiers III and IV.
The committee is not otherwise formally involved in the hiring process, although members of the committee may be involved in other board capacities (for example, as a member of a search committee).
7) Under what circumstances will the committee need to publicly announce meetings to consider compensation packages for individuals?
Under the Sunshine Law, public notice is required in order to hold a public meeting. Accordingly, public notice of a meeting will be given any time that the committee is required to take official action. Public meetings will be called in a fashion consistent with the bylaws that apply to all standing committees.
8) When will information about executive compensation be made public?
The salaries of the University’s officers and 25 highest-paid non-officers are made public as part of Penn State’s annual Right-to-Know Law filing.
Under its operating guidelines, the committee will need to take official action to approve compensation for a select group of executives, in tiers II and IIA (see answer to previous question for a listing of positions that fall within these tiers). The committee is required by the Pennsylvania Sunshine Law to take official action in a public meeting.
When the committee approves the compensation of a specific employee, that action must be taken at a public meeting, although the deliberation of the committee with respect to such employee and his or her compensation is expected to be done in executive session, as permitted by the Sunshine Law.
Salary information for individuals in tiers III and IV will be brought to the committee for informational purposes only. No official action needs to be taken by the committee with respect to such individuals.
9) Does Penn State expect to change compensation packages for current executives, and will those changes be made public?
The Committee on Compensation is required by the Pennsylvania Sunshine Law to take official action in a public meeting. Therefore, the Committee’s approval of any new and/or changes to applicable University executive compensation must be done in a public meeting. The review or change of any existing benefits programs is not scheduled at this time, but is part of the committee’s charge moving forward for future public meeting action.
10) How does this process apply to the hiring of a new head football coach?
Although the operating guidelines had not yet been formally adopted by the committee, the committee elected to act in accordance with the draft operating guidelines that had been proposed. Therefore, the committee met in public session on Jan. 11 and formally approved the compensation and employment terms of the new coach. The Committee on Compensation has oversight approval of the head football coach’s compensation, as well as compensation for the athletic director and the men’s and women’s basketball coaches.
11) How does this process apply to the hiring of a new president?
The Committee on Compensation will recommend to the full board the compensation and employment terms and conditions of the new president. Under the committee’s operating guidelines and the University’s bylaws, approval of the compensation and employment terms and conditions of the new president is a matter that requires approval by the board at a public meeting.
12) How were members of the comparison peer group selected?
Penn State followed a diligent and widely accepted process to develop a list of criteria used to form the executive compensation peer group, as outlined in the University’s Executive Compensation Strategy document. The criteria include: classification as a research university; membership in the Big 10 and/or Association of American Universities (AAU); national ranking (top 50 national universities and/or top 25 public universities); financials including Research Expenses Per Instruction / Research and Public Service FTE Staff; and total expenses (operating budget). Those institutions that best match these criteria were selected. Penn State relied on external advisers Sibson Consulting to help develop the group and confirm its reasonableness.
13) Why aren't all Big Ten institutions included?
Eight (of 12) Big Ten institutions are included; four were not included because there were more appropriate comparators available in terms of size, complexity and the other criteria described above.
14) What peers are used for comparison where the hiring of a new head football coach is concerned, and why is there a separate peer group for athletics-related hires (tier IIA)?
Comparisons were made to other Big Ten Conference institutions, as well as to other institutions with top-tier Division 1 football programs, such as Alabama and Texas. In order to obtain a fair “apples-to-apples” comparison for compensation purposes, it is appropriate to look at institutions with athletics programs of comparable size, scope and complexity.
15) Will the committee hold meetings to review (and approve, when appropriate) compensation packages prior to an offer to an individual?
In most cases, where approval is required, yes – the committee will hold a meeting prior to the hiring of an individual. The committee approves all compensation packages for tier II and IIA executives (see the answer to question No. 6 for details). There may be circumstances where it is appropriate or necessary to make an offer before a meeting can take place, although such an offer would need to be conditioned upon receipt of committee approval. For tier III and IV executives, the committee will be informed of new hires and their respective compensation arrangements, which does not require a meeting prior to the offer.
16) Does the committee actually hire individuals in tiers II and IIA, or does it simply approve their compensation and employment terms?
The committee will approve the compensation and employment terms, but will not approve the actual contract itself, which will be approved by the appropriate hiring executive, with advice of the Office of Human Resources, the Office of General Counsel and others, as appropriate.
17) Assuming a contract is approved at the public meeting, can the hiring process proceed?
The Board will approve the compensation and employment terms of the president and the committee will approve the compensation and employment terms of others, as set forth in the operating guidelines. Once that approval occurs there are no other processes (other than approval of the actual contract itself, with advice of the Office of Human Resources, the Office of General Counsel and others, as appropriate) that must be approved by the appropriate hiring executive.