U of L consultant: End President Ramsey's lucrative "tax gross-up" payments from foundation
PRESTONSBURG, Ky. (WDRB) -- An independent compensation consultant hired by the University of Louisville says President James Ramsey should no longer get “tax gross-up” payments, a lucrative and longstanding component of his pay from the university’s $1.1 billion foundation.
Ramsey is in line to receive tax gross-ups of $873,422 in the 2014 fiscal year, pushing his total pay over $2 million, according to a revised report by consultant Verisight Inc. of Chicago.
The university hired Verisight for about $23,000 to estimate Ramsey’s compensation and compare it to presidents at similar universities.
Verisight’s first report, unveiled Monday, made no mention of the tax gross-ups, which have for years been part of Ramsey’s employment contracts with the foundation.
But Verisight heavily revised the report following a WDRB.com story on Tuesday listing several components of Ramsey’s pay that were not reflected in the first version, such as the tax payments, large insurance benefits and some of Ramsey’s deferred compensation.
Verisight now estimates Ramsey receives $600,000 in a normal year in tax gross ups, which are extra money added to his compensation so that he effectively pays no income taxes on the portions of his pay that are “grossed up.” (READ FINAL REPORT HERE).
“In other words, if he is promised $500,000, the actual check might be issued for $1,000,000. This would leave the promised $500,000 after the required taxes had been deducted,” according to Verisight’s revised study.
The gross-up payments themselves are taxable income, according to Verisight and to the U of L Foundation accountant who handles Ramsey’s deferred compensation.
“Tax gross-ups are not common practice and should be eliminated, “ Verisight says in the report. “If the Board continues to pay Dr. Ramsey at current levels, we recommend tying more compensation to performance rather than to tax gross-up payments.”
Trustee Stephen Cambpell said during the board’s retreat Friday that gross ups, which emerged in the private sector in the early 1990s, are now “highly frowned upon” in corporate America.
“All faculty by and large pay their full taxes and there is no gross up for them,” Campbell said.
But Ramsey is legally entitled to the gross up payments through 2020 as part of his 2014 employment and deferred compensation agreements with the foundation.
Would he voluntarily give up the payments? Ramsey declined to speak with a reporter at Friday’s meeting, and U of L spokesman Tim Mulloy said there was no immediate comment on the matter.
Dr. Robert Hughes, chairman of the Board of Trustees and of the foundation’s separate Board of Directors, said he “cannot imagine” Ramsey’s contracts being “undone” to eliminate the tax gross ups.
“The bottom line is, we’ll have to honor the contracts that are in place currently right now,” Hughes said. “It’s a contract.”
Verisight's revised study also now includes an additional $75,000 in deferred compensation for Ramsey and almost $156,000 in perks and benefits that were not part of the original study but later identified by WDRB.
For example, the foundation provides Ramsey a supplemental disability policy worth $36,880 a year, a long-term care insurance policy costing $21,130 a year and a $1 million life insurance policy costing $6,310, according to Verisight's final report.
And, Ramsey gets a gross-up payment so that he doesn't owe income taxes on those insurance policies: $58,010, according to the report.
On Friday during the board's annual retreat, trustee Craig Greenberg said the way in which Ramsey is paid "unfathomable" and more akin to a "Wall Street banker" than a public university president.
Trustee Jonathan Blue, a longtime Ramsey supporter, voted against a 25 percent bonus for Ramsey because the report for which U of L paid more than $20,000 changed so much after WDRB pointed out its many shortcomings.
"We've got to have better data and transparency when we look at these important issues," Blue said in an interview after the meeting. "I think Dr. Ramsey's done a yeoman's job. I am his biggest supporter, his biggest fan. But there are things that need to be improved."
Verisight also recommended that Ramsey's main "deferred" compensation of $250,000 vest every three years -- not every year as it currently does. The idea behind deferred compensation is to encourage executives to remain on the job for a number of years for an extra payout, but the fact that Ramsey gets an extra $250,000 each year defeats the purpose, Greenberg said.
"It's an oxymoron," Greenberg said.
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