The University of Louisville Foundation board of directors voted for two major policy changes on Tuesday, significantly lowering the spending rate of the foundation next year and terminating its controversial deferred compensation plan, which had given multimillion-dollar payments to former President James Ramsey and his top staffers.
The policy changes are part of an ongoing effort to restore the public’s confidence in leadership of the university and the foundation that manages its $784 million endowment following a tumultuous year of negative headlines, resignations and entire boards being abolished and replaced.
In addition, the board approved a resolution authorizing the new joint governance committee of the university and foundation to move forward on a memorandum of understanding recommending reforms for the foundation, including a new rule prohibiting the president of the university from also serving as president of the foundation, as Ramsey did.
Near the end of Tuesday’s meeting — after a lengthy closed session to discuss potential litigation — the board voted unanimously to terminate its deferred compensation plan for key employees of the university and foundation, effective at the end of March. Board chair Diane Medley told reporters after the meeting that the much-derided plan “wasn’t well thought out, from a retention perspective.”
“We just felt like we needed to start a clean slate here, and just draw a line in the sand,” said Medley. “Anyone who’s in it and has vested will get their money, but going forward we think it needs to be rethought in its entirety, on whether it’s even a viable solution or viable plan going forward.”
Medley added that due to an IRS requirement, the foundation may not have another deferred compensation plan for at least three years, but did not rule out a new one being created at that time if the university is on a different footing and confidence in the foundation is restored.
Keith Sherman, interim executive director of the foundation, told reporters approximately six current administrators would be affected by termination of the deferred compensation plan on March 31. Even if those employees’ contracts promise future vesting on those plans if they stay at UofL for a certain amount of time, Sherman says the foundation has every right to eliminate its plan going forward, so any money not vested as of that time will not be rewarded.
“The way the plan is drafted, the plan administrator – which is the foundation – has the ability to amend or terminate the plan at its discretion,” said Sherman. “So based on the rules… we have every ability to terminate that plan.”
The board also moved to significantly lower the spending rate of the foundation next year, which has been one of the main objectives of its leadership in recent months. Medley told reporters that the deferred compensation plan was “not a driver” of the foundation’s excessive spending in recent years, though it did play a small part.
“There were obligations created by the deferred compensation plan that created some of the overspending,” said Medley. “But I wouldn’t even consider it a significant part. Most of the overspending was actually money sent to the university to support its mission. So it was done for the right reason, it was just not necessarily a prudent thing to do on an ongoing basis.”
Excessive spending has been cited as a reason for the market value of UofL’s endowment falling by over 10 percent in the last fiscal year — a point re-emphasized in Tuesday’s meeting after a presentation by the foundation’s investment adviser, Cambridge Associates. Though the investment pool managed by Cambridge has performed well, total assets have remained stagnant over the past decade due to endowment spending that is well above the norm among its peers.
The board voted to decrease the foundation’s annual spend rate from 7.48 percent to 5.51 percent in the coming fiscal year — most of which goes to academic units, with other money from the endowment going to fundraising and strategic spending by the president. Finance Committee chair Vince Tyra stated that with this decreased percentage of spending toward academic functions next year, “the difference in raw dollars is $13.7 million versus how we would have done it historically.”
“We had good support today on changing that policy to be a stated percentage that is lower than it has been in the past,” said Medley. “Because we do have three goals… to make sure that this foundation is prudently run now, that it has longevity and that we are honoring donors’ commitments. So this is a good step along those lines.”
The board also unanimously voted to authorize the governance committee to move forward with recommendations on needed reforms regarding the structure and policies of the foundation, specifically citing the recommendations of a scathing state audit and the Southern Association of Colleges and Schools — the accrediting agency that has placed UofL on probation. The most significant of the early recommendations is prohibiting a president from having the dual role of leading both the university and its foundation, which Sherman called “bad governance.” Sherman added that the committee will make several other changes to the foundation’s bylaws over the next 60 to 90 days, which may include the possibility adding a faculty or student representative on its board of directors.