Prince George’s County has hired Anne Arundel County Public Schools(AACPS) Superintendent Kevin Maxwell for a reported annual salary of $290,000, a $33,000 year increase on his $257,000 current salary from AACPS. (See Capital , Baltimore Sun , and Washington Post coverage of his pay increase.) Although the $290,000 figure isn’t technically a lie, it is highly misleading.
Salary vs. Compensation
One reason it is misleading is because salary and total compensation can be quite different. In business, an employer is interested in an employee’s total expected compensation, not its fixed salary component, because total expected compensation is what affects his bottom line. Similarly, taxpayers should be concerned with total expected compensation because it is their bottom line. In particular, they should be wary of PR gimmicks that make “salary” appear as low as possible.
Here is the breakdown of Maxwell’s total expected compensation, with the part used to calculate his deferred compensation broken out:
Parts Used to Calculate Deferred Compensation
- $290,000 base salary with a four year guaranteed contract
- Automatic cost of living increases
- 10% annual performance bonus ($29,000), with the criteria determined in writing at the beginning of each school year.
- 36 days of annual leave each year, including up to ten allocated for salary ($11,154), ten for retirement contributions ($11,154), ten to be carried over to subsequent years, and 25 to be cashed in at retirement ($27,885).
- 15 days of sick leave each year, all of which may be carried over from year to year and contribute to years of creditable service upon retirement.
Parts Not Used to Calculate Deferred Compensation
- $43,000/year contribution to the superintendent’s retirement plan, exclusive of his Maryland pension.
- Free family medical, dental, vision, and pharmaceutical insurance.
- Lifetime retirement medical insurance on the same terms as other retired school administrators
- Free $500,000 life insurance policy.
- Free vehicle, driver, security personnel, laptop, and cell phone.
- $25,000/year reimbursement for professional development
- $15,000 reimbursement to Anne Arundel County for breaking his contract.
- Compensation allowed from sources other than Prince George’s County for private consulting, speaking engagements, board service, and adjunct professorships, providing such commitments don’t conflict with his primary job for Prince George’s County.
Deferred Compensation
However, the main reason the $290,000 figure is misleading is that it doesn’t report on the increase in Maxwell’s deferred compensation. When his expected increase over his current basis for calculating his pension is factored in, he received the equivalent of a signing bonus worth as much as $1 million. The “signing bonus” is based on taking the present value of future increases in deferred compensation from signing his compensation contract.
Maxwell meeting with Prince George’s County students, July 10, 2013, 6-8 pm.
The calculations are complicated, including making actuarial assumptions and using accrual rather than cash accounting (businesses must use accrual accounting; governments generally use cash accounting). Since reporters are either unable or unwilling to make such calculations, and, in the unlikely case they do, feel compelled to give legitimacy to misleading counterarguments, it is generally easy to pull the wool over the public’s eyes on such compensation matters.
So here is my analysis of Maxwell’s increase in deferred compensation, in effect, a “signing bonus.” Deferred compensation for public employees in Maxwell’s category is based on his last three years of employment. This is then multiplied by 1) years of creditable employment in a Maryland public school system, 2) an average multiplier ranging between 1.2% and 1.8%, and 3) expected lifetime after retirement. In Maxwell’s case, I’m using the figures $339,449 for his expected average final compensation (see calculations below), creditable service of forty years (including 22 in Prince George’s County, 6 in Montgomery County, 7 in Anne Arundel County, 4 under his new contract, and 1 year of accumulated sick leave), a multiplier of 1.5% (the average of 1.2% prior to 1998 and 1.8% through 2017), and an expected post-retirement of 23 years for a healthy white male age 65 (the age at the end of Maxwell’s 4 year contract).
Here is how I calculate his average final compensation for purposes of calculating his pension benefits.
- $290,000 base salary
- $29,000 performance bonus
- $11,154 unused annual leave bonus
- $9,295 unused annual leave bonus cashed out on retirement but averaged over three years
- Sums to $339,449
- Less $257,000 AACPS Salary
- Equals $82,449 increase in salary basis for calculating pension
Now to calculate the increase in his expected deferred compensation, we use the following formula ($82,449 X 40 X 1.5% X 23) to get $1,137,796—a bit over $1.1 million.
In other words, Maxwell’s “signing bonus” is equivalent to what a teacher who has been in the school system for 40 years would earn in deferred compensation over her entire 40 year career. Another way to look at it is that the combined total of several hundred new teachers wouldn’t earn as much in deferred compensation for their first year of work (Maryland’s pension system is stacked against new teachers).
Access to Maxwell’s Contract
One has to applaud Prince George’s County for posting Maxwell’s contract on its website . After the contract was signed on July 9, its PR folks waited a day to do so, which reduced the risk of reporters contradicting their PR when the story was still considered newsworthy. But compared to AACPS, Prince George’s County is a model of compensation transparency. When in the early 2000s, as part of a statewide survey of public access to superintendent contracts, an undercover auditor for the Maryland-Deleware-DC Press Association sought to get a copy of the AACPS superintendent’s contract, he was investigated by security as a potential murderer. As the author of the resulting report summarized:
An auditor seeking the records in Anne Arundel County was greeted by a security guard and taken to an office where the head of security quizzed him about why he wanted the record, then said it was not public.
The head of security said the school wasn’t trying to be uncooperative, but merely that there had been death threats against the superintendent.
“We just get nervous,” he told the auditor. “Not that we have anything to hide.”
Pretty intimidating–but also illustrative of the delays, obfuscations, and intimidation tactics used by AACPS when the public seeks to gather compensation data about school employees that the law says the public has a right to see but AACPS would prefer you not know.
To be fair, the “signing bonus” described here is primarily paid for by the state of Maryland, not Prince George’s County, so from the perspective of Prince George’s County, the signing bonus doesn’t affect its own bottom line. But from the perspective of the person who receives the bonus (Kevin Maxwell) and the taxpayers of Maryland who pay for it, it is as real as the sun, the moon, and the earth, even if actual payment may be deferred to our children.
Maryland taxpayers will also get a hit if, as expected, AACPS hires a Maryland government employee who will get a big bump in final salary as a reward for becoming incoming superintendent. My guess is that Maxwell’s move to Prince George’s County may well cost Maryland taxpayers over $2 million in total “signing bonuses,” even though the combined nominal increase in cash compensation from Prince George’s County and AACPS is likely to be well under 10% of that for the coming school year.
Note that Maryland’s General Assembly has signaled its intent to shift pension obligations to local school districts, so Prince George’s and Anne Arundel counties may end up paying for these increases in deferred compensation. Shifting pensions locally avoids “moral hazard,” where a party has an incentive to engage in a transaction because it is protected from its likely costly consequences. AACPS has been a master at practicing and hiding such moral hazard. But when you think someone else will be the sucker and you end up as the sucker yourself, it gives “moral hazard” a whole new dimension: moral hazard as wishful thinking.
Outrage over Maxwell’s Sick Leave Bonus
In 2010, the teachers’ union in Anne Arundel County publicized outrage over the Board of Education granting Maxwell $257,000 in cash for unused sick leave, bringing his total salary for that year to over half a million dollars—approximately four times what the County Executive earned that year. The publicity spurred the General Assembly to introduce legislation to prevent such embarrassments in the future. But I was dumbfounded at all the professed surprise. Anyone who had read Maxwell’s contract would have known he was entitled to cash out his sick leave. Taken at face value, it suggested to me that people on the inside who one would expect to know better were as dependent as reporters and the public on the press releases that the school system hands out in lieu of copies of actual contracts and compensation data. Or perhaps the insiders knew all along and just waited for an opportune moment to publicize the information.
Recommendations
To minimize the type of compensation shenanigans that have become routine with AACPS, all Board of Education compensation agreements with the superintendent–as well as employee groups–should be posted online next to the agenda item for the public meeting at which the Board of Education votes on them. If that is asking too much (AACPS as a whole has strongly opposed doing this), the Board of Education should at least make such agreements easily accessible online immediately after it has voted on such contracts and before the press (which has the attention span of a kitten) has moved on to its next story. To my knowledge, this is the Board of Education’s current policy. The problem has been getting it to follow it.
In addition, individual level compensation information that is legally public (but with names redacted) should be posted online in a machine-readable format (e.g., in a format readable by an Excel spreadsheet). Anne Arundel citizens spent millions of dollars so AACPS could upgrade its payroll system with the latest computer software. It should be viewed as laughable for AACPS to continue to pretend it lives in the dark ages when seeking excuses for not making such information publicly available.
