Financial Straits 

Is the compensation package pricing MCS out of a CFO?

In December, executives at Memphis City Schools thought they were close to hiring a new chief financial officer. They were in talks with Henry Marini, a former executive at Bausch & Lomb and the Rochester City Schools in New York state. But negotiations soon broke down because MCS could not meet Marini's asking price.

"Even after the first page of his proposed contract, I was behind the eight ball," says Michael Goar, MCS' chief of operations.

Memphis has not had a permanent finance director since Roland McElrath, the associate superintendent of business operations hired in 2000, quit in 2003. Goar had hoped to announce the district's new CFO before the Christmas break. At the end of December, however, Marini decided to take a position as a consultant with the Kansas City School System in Missouri.

The incident raises questions about MCS' ability to compete in the academic job market.

According to the National Center for Education Statistics, Memphis is the 21st largest school district in the country. The city school system has an annual operating budget of $785 million, with more than three quarters going to salaries and benefits. Yet in the search for top executives, especially at the position of chief financial officer, MCS is struggling to contend. "I believe that we are underpaying our key positions," says Goar. "We need to make some sort of adjustment."

Both Rochester and Kansas city school districts, for example, are significantly smaller than Memphis in terms of size and budget. Yet both were willing to pay Marini more money than he was offered in Memphis. Rochester, which has an operating budget roughly two-thirds that of MCS, paid CFO Marini $161,000 annually, plus a car allowance; MCS offered $153,000.

Kansas City Schools, which has an annual budget of around $275 million, hired Marini as a financial consultant for $6,500 a week and is expected to retain him through their transition to a new superintendent in the summer. If Marini works for six months at KCS, he will make more money than he would at MCS in a year.

Goar asserts that there are a number of pressures facing MCS that make it difficult to stay competitive in terms of salary. For the last two years, MCS has run deficits of $30 million and $32 million. "It is very difficult to address compensation while you are in the middle of dealing with a deficit," says Goar.

Much of the deficit is, in fact, tied to the size of the MCS workforce. The school system is the largest employer in the city. Expenditures related to salary can be troublesome. "We have four brand-new unions, and these will drive salaries up," says Goar, "as well as increases in the cost of health insurance, pay, and retirement benefits."

Yet the troubles facing MCS are exactly what a CFO would deal with. When Marini went to Rochester, the school system was facing a nearly $30 million deficit; he balanced the budget and helped organize the system's finances.

"The role of the CFO is a lot different today in an urban school than it was even two or three years ago," says Marini. "There are increased health-care costs and a continuing growth in unions. You need a CFO who is skilled in negotiation, someone with business skills, in addition to [civic] skills."

In fact, Goar says that one reason Marini was an attractive candidate was his experience in both the private and public sectors.

According to Margaret Coleman, the former MCS CFO who left for Atlanta in 2000, the longer Memphis goes without a permanent CFO, the harder it will be to get a new one. "Memphis hasn't had a CFO in a while," she says. "That means there is a high degree of risk. Most CFOs want to be paid for that risk."

Goar insists that MCS has a capable interim staff and that no one would be a panacea for MCS' budget woes. Still, he admits that the district may have to reconsider the importance and relative expense of the CFO position.

"We're in the process of evaluating strategies for compensation and preparing to present that to the superintendent and the board," he says. "At this point, we lack a coherent model or strategy for compensation. In the past, no one really paid that much attention to compensation. They just went with the flow."

Perhaps MCS will heed David Smith, school board president at Kansas City, who, praising the hiring of Marini, said: "I didn't want to be penny-wise and pound-foolish."

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