Executive Compensation and Perks and Liberty University (2018)

With the most recent headlines reporting the resignation of Jerry Falwell, Jr. following several scandals including his wife’s affair with another man that lasted from 2012-2018, Falwell’s alleged penchant for watching his wife have sex with the young man, and that Liberty University is said to owe $10.5 million (2 years of salary at $1.25 million a year plus $8 million because his responsibilities were curtailed) to Falwell, we all have to wonder what’s been going on at Liberty University?

When questioned about the $10.5 million in exit compensation,  Mr. Falwell said “I didn’t break any rules – I get my compensation.” But the more important question is why the trustees of Liberty University ever entered into a contract with Falwell that would commit the university to paying Falwell $10.5 million if he left the university?  Was he that much of an asset to Liberty?  Could he have gotten that sweet deal from anywhere else? The answer is probably no and no.  So, why did the trustees give Falwell such a generous contract?  And, if he didn’t break any rules, why did he tender his resignation to the Board of Trustees and why did they so readily accept it?

Falwell had a sweet deal and he blew it.  But the focus needs to be on the trustees of Liberty University because they were given control and the powers of administration of Liberty University with a legal obligation to administer what was best for Liberty University, not what was best for Jerry Falwell, Jr. and his family.  Unfortunately, its the donors, the government (they gave $4 million in grants/contributions in 2018) and the people paying tuition who are ultimately going to pay for this scandal.

Key information to know about Liberty University include:

Liberty has about 15,000 students on campus but more than 90,000 enrolled in on-line classes, making the school one of the largest Christian universities in the country.

Liberty has 17 colleges including a school of medicine (osteopath) and law, along with 20 Division 1 sports. The annual cost of tuition, room, and board for undergraduates is about $40,000, or about $160,000 for a 4-year degree – a relative bargain compared to many private universities whose cost is often $80,000 annually or $320,000 for a 4-year degree.

In 2018, Liberty reported total revenue of $1.2 billion, of which $1.1 million (92% of revenue) came from program services (tuition, room and board, fees, and medical residency program). The remaining revenue primarily came from contributions, gains on the sale of assets, and investment income. Expenses totaled $861 million (not including $46 million in depreciation) including $236 million in grants (mostly scholarships or partial scholarships).

Liberty closed 2018 with $2.4 billion in net assets – an increase of $300 million from the prior year.  All of which goes to say Liberty was able to cover university operational costs (including more than $1 million in compensation to Falwell and $8 million to 22 other executives, first class and charter travel, and travel for companions), give nearly a quarter of a billion dollars in grants or scholarships and still put $300 million in their savings in 2018.

For the school year ending June 30, 2018, the Form 990 submitted by Liberty University to the IRS reports 11,725 employees received $362 million, which equates to an average compensation of $31,000 – low compared to other universities affiliated with a religion ($40,000 at Villanova, $42,000 at Boston College, $46,000 at Georgetown, and $38,000 at DePaul). However, it’s the details that matter.

Liberty University has 28 voting members of its governing body, 19 of whom are independent (which means there are 9 voting members related to each other). This alone should make someone stop and pause because Liberty University is a tax-exempt, non-profit 501 (c) (3).  On the Form 990, 32 voting members are listed (because of timing differences), 30 (or 94%) of whom are male, while 2 or (6%) are female.  How is it that a major university in a country that has approximately 50% males and 50% females, has a trustee composition that pretty much defines a patriarchy?  How would Liberty University defend itself against allegations of systemic discrimination?

418 employees received more than $100,000 in compensation with the 23 most highly compensated listed below:

• $1,067,330:  Jerry Falwell, Chancellor/President
• $  853,103:  Randall Smith, EVP and COO
• $  809,702:  Turner Gill, Head Coach Football
• $  640,433:  Ritchie McKay, Head Coach Men’s Basketball
• $  525,773:  Ian McCaw, Director of Athletics
• $  381,774:  David Nasser, SVP Spiritual Development
• $  361,465:  Peter Bell, Dean College of Osteopathic Medicine
• $  359,644:  Jeff Barber, Former Key Employee
• $  331,056:  Ronald Kennedy, EVP Online Enrollment
• $  320,278:  Laura Wallace, EVP, Human Resources
• $  311,425:   Chris Johnson, EVP Residential Enrollment
• $  292,142:  Carey Green, Head Coach Women’s Basketball
• $  287,533:  Ron Hawkins, Provost and Chief Academic Officer
• $  282,707:  Ray Morrison, Assistant Dean, Clinical Education 
• $  281,580:  Don Moon, CFO/VP Investment Management
• $  275,747:  David Corry, General Counsel/Secretary
• $  272,187:  John Gauger, CIO/VP Analytics
• $  270,662:  Charles Spence, SVP Campus Facilities and Transportation
• $  262,366:  Robert Ritz, SVP University Financial Services
• $  242,977:  Samuel Beaumont, SVP Auxiliary Services
• $  238,379:  Ben Gutierrez, Co-Provost/VP Academic Affairs
• $  208,510:  Lawrence Hine, SVP Student Affairs
• $  189,075:  Jerry Falwell III, VP of University Support Services

22 out of the 23 (96%) of the most highly compensated individuals are male. The lone female is predictably in Human Resources.  The question: Why doesn’t Liberty have more females in the most highly compensated positions?

The IRS 990 for the year ending June 30, 2018 also reports Liberty paid for first class or charter travel and travel for companions. In addition, Liberty paid for personal services (e.g. maid, chauffeur, chef).  To read about the detail of these expenses, go to Schedule J, Part III, Supplemental Information (link below). Again, how does a tax-exempt no-profit 501 (c) (3) justify spending revenue on first class or charter travel or travel for companions?

Nepotism appears to be common at Liberty University as indicated by Schedule L (Transactions with Interested Persons) which discloses the following information:

• Wesley Falwell, son of a board member and officer received $54,744 in compensation.
• Laura Falwell, daughter in law of a board member an officer received $57,751 in compensation.
• Sarah Falwell, wife of a key employee received $63,315 in compensation.
• Emily Hine Elrod, daughter of a key employee received $15,086 in compensation.
• Jessica Smith, daughter of a key employee received $38,335 in compensation.
• Tammy Gutierrez, wife of a key employee received $43,100 in compensation.
• Bernie Beckles, wife of a board member received $17,100 in compensation.
• Ryan D Rush, son in law of a board member received $15,000 in compensation.
• Virginia Dow, sister in law of an officer received $86,671 in compensation.
• Scott Hawkins, son of an officer received $184,175 in compensation.
• Jonathan Wallace, son of a key employee received $75,264 in compensation.
• Joshua Spence, son of a key employee received $22,098 in compensation.
• Kathleen Spence, wife of a key employee received $57,622 in compensation.
• Jennifer Kennedy, wife of a key employee received $65,500 in compensation.
• Nastaran Morgan, sister of a key employee received $51,334 in compensation.
• Vincent Tickle, son in law of a board member received $100,772 in compensation.
• Robert N Ritz, son of an officer received $30,590 in compensation.
• Brandon Elrod, son in law of a key employee received $44,519 in compensation.
• Rudy Nasser, son of a key employee received $34,237 in compensation.
• Jennifer Nasser, wife of a key employee received $96,688 in compensation.
• JF Management, owned by the wife of a key employee received $58,405 in compensation.
• Cedar Ridge Management, owned by the son of a board member and officer received $46,602 in compensation.
• Redfinch Solutions, a business owned by a key employee received $123,950 in compensation.
• Ducar International, a business owned by a board member received $135,525 for payment for services.
• A substantial contributor received $185,883 for payment for vehicle repair services.
• A substantial contributor received $200,773 as payment for demolition services
• A substantial contributor received $322,916 as payment for surveying, engineering, and planning services.
• A substantial contributor received $558,119 as payment for fuel and for advertising services.
• A substantial contributor received $441,315 as payment for heating and air installation.
• A substantial contributor received $9,074,123 as payment for construction services.
• A substantial contributor received $75,886,103 as payment for construction services.
• A substantial contributor received $5,294,957 as payment for media services.
• A substantial contributor received $4,270,4113 as payment for investment management services.
• A substantial contributor received $528,918 as payment for construction services.
• Elmer Towns, co-founder received $122,394 in compensation.
• Jerry Falwell Jr and Jonathan Falwell sit on the board of trustees and are brothers.
• Mr. Jeffrey Benson and Mrs. Gaye Overton Benson sit on the board of Trustees and are husband and wife.
• A $750,000 loan (that was not approved by the Board or committee) to a substantial contributor for construction management at Liberty was made. The balance due is $356,125.
• $363,944  in education grants were made to dependents of Board members, officers, and key employees.

The list above is quite extensive with the payments over $400,000 and up to $76 million to substantial contributors in bold.  More than $100 million was paid to substantial contributors which can lead some to ask questions pertaining to bidding, pay to play, and allocation of resources.

Summary and Noteworthy Information

Liberty provides an accredited college education at a relative reasonable price;  $160,000 for a 4-year degree compared to $300,000 at many other colleges and universities.  In addition, Liberty is noted for being able to meet their expenses primarily from program income including the provision of $236 million in education grants. Not many schools do this and one of the primary reasons appears to be because of lower compensation costs although the most highly compensated employees (primarily males) appear to be well compensated.  In addition, Liberty had $300 million in unspent revenue at year-end which went into the general fund that ended the year with $2.4 billion.  However, that said Liberty has a long way to go in other areas.

Out of 32 trustees, 30 are male while 2 are female. Of the 23 most highly compensated employees, 22 are male while 1 is a female. In addition, Liberty employs many individuals who have a family relationship with a board member, key employee, or an officer, and awards substantial contracts to substantial contributors. Liberty also paid for first class or charter travel and travel for companions – perks that many would say are unnecessary and where the funds would be more useful helping the underprivileged or poor. And, finally, the question that needs to be asked is:  Why did the Board of Trustees give Jerry Falwell, Jr. a contract that provided two years in annual compensation (which equates to about $2.5 million) and $8 million should he shed his responsibilities at the University?

To read the IRS Form 990 (for the year ending June 30, 2018), click here.