Superintendent/Treasurer contract changes explained

Last month, the board voted to adjust Superintendent Dr. Farrell’s and Treasurer Mr. Seymour’s contracts.  Following some questions about the details and values of these contract adjustments, I presented a summary of what they mean financially at last night’s meeting.

First, I would like to stress that these two top administrators, who have done a fantastic job supporting education, identifying opportunities on both the revenue and expense side, and in general leading Milford through one of the most challenging times in public school history, are significantly underpaid versus their peers.  Milford is one of the largest districts in the state.  Yet, our treasurer’s compensation is fifth from the bottom in the area; our superintendent is third from the bottom.

The reason these two talented people agreed to come to – and stay in – Milford is because they retired from their previous districts and can afford to take less and work where they choose.  However, since they are worth significantly more than what we are paying them, they could just as easily choose to move elsewhere – any district would be thrilled to have them.  And to replace them would cost us tens of thousands more than what we’re currently paying.

First, a bit of explanation:  instead of simply a salary, top administrator contracts often consist of a salary plus an amount or percentage placed in an annuity for retirement.  This protects both parties; the district does not have to pay retirement taxes on the annuity, and the annuity amount is not included when the administrator receives retirement payout from the state.  For the administrator, this is a great way to have additional retirement funds outside the state system.  So, when contributions to annuities are mentioned, this is not some “special perq” the administrator is receiving, and his salary would be that much higher if he didn’t receive the annuity.

Regarding Mr. Seymour’s contract:  when his contract was renewed in August, 2007, the board in place at that time approved a guaranteed 5% annual raise, plus 5% of his salary to be placed in an annuity.  Given the current economic situation, Mr. Seymour was not comfortable with this – he wanted the raise eliminated from both his current and extended contract.  Instead, we granted him an 8% contribution of salary to an annuity for the last two years of his contract, moving this to 10% for his new contract.  In addition, we gave him 10 extra vacation days and 12 extra sick days.  Under this revised contract, his actual salary, and thus the amount going to an annuity, stays the same each year – and because he is not receiving a higher base each year, his overall compensation is significantly decreased.  This is especially generous given his compensation started out low to begin with.

Regarding Dr. Farrell’s contract:  as mentioned, Dr. Farrell is significantly underpaid, but he still did not want a traditional raise.  Instead, we agreed to a 4% contribution to his annuity, 10 extra vacation days and 12 extra sick days.

The actual “value” of this package varies – there is a maximum and minimum cost to the district, depending if the vacation and sick days are used or not.  For ease, I assumed our maximum cost would be if the administrators did not use any of these extra vacation days, they did use all their sick days (so we lost the value of their work for those days), and we paid the annuities as outlined.  In this case, for BOTH administrators, the district would spend an additional $16.5k/year for the next three years – but this is not all in cash, because the sick days were already part of the salaries.

After adjusting this to what it would cost us if it were a straight raise, this is a 5.5% overall increase.  This may not make sense at first, since we’re placing 8% and 4% into an annuity.  However, because Mr. Seymour’s original contract included a guaranteed raise that would increase his base every year and would also cost us retirement taxes, he actually ends up taking a cut versus where he would have been.  The net result is the 5.5% overall.

Our minimum exposure assumes both administrators take all their vacation days and we pay out 50% of their sick days (the maximum they can receive).  In this case, we pay appr. $9.7k/year over the next 3 years, or 3.2%.

One other way to look at the numbers is to look simply at the total maximum amount we would have to pay out of pocket.  This would assume both administrators use all their sick days, so we would pay nothing extra for them (we just lose those work days), but we would pay for all their vacation days.  This would result in a total increase for both administrators of $6,000/year, or 2%.

As you can see, these numbers and percentages, no matter how you slice and dice them and even looking at them at as high a cost as possible, are not very much.  Our actual exposure is likely somewhere in between the 2% and 5.5% – which, given the quality of our people and the fact we’d have to pay significantly more if we lost them, is a deal in any economy.

If you’d like more detail on this or would like to see the spreadsheet to see the calculations, feel free to email me.

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3 Responses to “Superintendent/Treasurer contract changes explained”

  1. Larry Deel Says:

    Andrea,

    While I agree with the logic behind the extra vacation and sick days, I still have a hard time swallowing it. I too agree that Both Dr. Farrell and Mr. Seymour have done a fine job, and I am not surprised that their peers are paid more on average. But, I also hope they WANT to be at MEVSD. Not everyone bases their choice of jobs on salary and benefits alone. I know I don’t. Please don’t take this as a jab at your support of the decision. I just see it as more than dollars and peers.

  2. andreabrady Says:

    Larry, I know what you’re saying, and many people are saying the same thing. Here’s a bit of perspective: the highest amount we could possibly pay out, which we will never pay out, is equivalent to about 52¢ A YEAR to the owner of a home valued at $100,000! We are literally talking pennies! The reality is, these contracts will probably cost taxpayers about 35¢ a year per $100,000 home value.

    Some additional points:

    * The best argument for rewarding these two men with the slight amount we gave them is that, without them, the community would be spending significantly more. Not only would we have to pay significantly higher salaries to replace them – but I seriously doubt we would find people as creative and able to find efficiencies as these two. Yesterday, $2 million/year in savings were presented – yet we will hardly feel it academically. We are so far ahead of other districts because of the leadership they have provided …

    * These two men are doing jobs equivalent of CEO and CFO at a major corporation. They are not easy jobs. I know others in the community have not received raises or benefits or any other kinds of consideration – but the majority of people are not under the pressure these two people are. We are asking them to help turn the way we deliver education on its side, and that’s not easy. I know, private companies have to do that, too – but I believe there are few people who have managed their businesses as well and as creatively as these two people, and at such a low salary. To be able to make them happy and give them a few extra benefits at a cost as low as potentially 2% is a huge bargain and in the best interest of the community.

    * Mr. Seymour had a contract that guaranteed him a 5% raise plus 5% to an annuity. Obviously this current board did not approve that contract. He was within his rights to insist on those amounts. However, he has not even taken the 5% increase for the past few years.

    * If he did execute the contract, he would soon be making more than Dr. Farrell. Mr. Seymour himself was very uncomfortable with that, and there was no way we could adjust Dr. Farrell’s contract to keep parity – that would have been extremely expensive.

    * Both wanted more flexibility with time off. As they are not in their 20s any longer, they did not want the risk of not having enough sick days. Perhaps they will use the extra vacation days or perhaps they will not – we don’t know, they don’t know. But even if they were to use them, their work would not slip. Even on vacation, they are on the job. Not many people can say that.

    * The hours and responsibility that goes with these jobs is tremendous. I know Dr. Farrell is out driving roads at crazy hours of the morning when the weather may be bad, trying to determine if he should delay or call off school. He then puts in a full day-plus, and is on call on weekends (and vacations, as mentioned).

    Trying to get past the direct comparison to your own situation and those of your friends & family is tough … but, even being extremely fiscally conservative, I fully believe these contracts were in the best interest of the community.

  3. Larry Deel Says:

    I accept those reasons you cited for making the decision. I also appreciate the fact that you put that much thought into it. Not that I expect otherwise from you, but I think some current and especially former BoE members would have seen the whole thing superficially.

    At the risk of opening another can of worms, I assume Dr. Farrell & Mr. Seymour fall into the “double dipper” category. I know that issue has made its way around lately, but it is worth mentioning. They may be entitled to that benefit, but that doesn’t make it right.

    I guess my whole point relates to what you mentioned above: “We are asking them to help turn the way we deliver education on its side, and that’s not easy.” I think taxpayers need to turn taxpayer funded compensation on its side. I assume you have been loosely keeping up with what is going on in the city of Cincinnati. That may be an apples & oranges comparison, but public sector compensation needs to be looked at under a microscope.

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