Corporate Culture at ETS

[George Sheridan <learn@JPS.NET>]

The first portion of this article from the November 23 New York Times was 
reprinted in the Forum section of the Sacramento Bee on Sunday, December 1.

Corporate Culture and Big Pay Come to Nonprofit Testing Service
By TAMAR LEWIN

Buoyed by growing revenue, the Educational Testing Service, the 
not-for-profit group that produces the SAT, the Advanced Placement exams 
and the Graduate Record Exams, last year gave one-time bonuses of as much 
as $366,000 to 15 of its officers.

E.T.S., the world's largest testing organization, has traditionally paid 
salaries comparable to those at colleges, universities, and groups like the 
College Board, which administers the tests that the service devises for it.

But under the leadership of Kurt Landgraf, a former chief operating officer 
of the DuPont Company who became president of E.T.S. two years ago, 
compensation has soared.

Mr. Landgraf himself received nearly $800,000 for his first 10 months on 
the job ? about twice as much as Gaston Caperton, who heads the College 
Board ? and more than all but two college presidents in the nation. One new 
vice president earned $25,700 for her first five weeks on the job and 
received a one-time payment of $212,306.

E.T.S. was founded in 1947 as a tax-exempt organization to meet the growing 
demand for admissions tests for colleges and graduate schools. In large 
part, the pay changes reflect the service's conversion from an entity 
staffed mostly by academics to one that is run by executives recruited from 
the corporate world and that had revenue of more than $700 million in the 
last fiscal year.

Mr. Landgraf said the new compensation system was necessary to attract the 
people the service needs to help expand beyond college testing into a more 
global business. Those involve several new areas of operation, including 
English tests in countries like China, and state elementary-school 
assessment tests throughout the United States. [The version in the 
Sacramento Bee added the sentence, "E.T.S. has won the contract to handle 
all of California's assessment tests."]

"This is a billion-dollar commercial entity," Mr. Landgraf said. "We're an 
organization with a very strong social mission, but we are also a very 
large commercial enterprise. Our compensation is based on the simple 
principle that we have to attract people who can help us grow, and while we 
can never pay what DuPont or General Electric does, because we don't have 
tools like stock options, we can use incentive pay and other cash 
payments." [The version in the Sacramento Bee deleted the portion of this 
sentence beginning, "and while..."]

Tax lawyers said that if a nonprofit seemed to be cashing out most of its 
excess revenues in the form of bonuses, that could be improper. But Mr. 
Landgraf said, "We are not doing anything like that, and we are nowhere 
near the line."

The bonuses totaled some $2 million for the fiscal year ending in June 
2001, when the service had an operating surplus of $34 million.

Others take a different view, arguing that because the service is a 
tax-exempt group, it must operate in the public interest, and that it 
should use surplus revenue to reduce fees, not to enrich its officers.

"This money comes directly out of the pockets of test-takers, their parents 
and taxpayers from states that contract with E.T.S., people who have no 
choice but to pay for these tests," said Robert Schaeffer, the public 
education director of Fairtest, an advocacy group critical of standardized 
testing. "It's very sad to think how many families' SAT and A.P. fees went 
straight into bonuses."

More than two million students take the SAT each year, which costs $26, in 
line with the $25 the other leading college admissions test, ACT, charges. 
Fewer take the G.R.E., which costs $115, or the graduate management 
admissions test ? the G.M.A.T. ? which costs $200, exams that hold virtual 
monopolies in their fields. In all, the service says it develops and 
administers more than 12 million tests worldwide. [The Sacramento Bee 
version omitted the last two sentences of this paragraph.]

"If E.T.S. thinks of itself as a commercial enterprise," Mr. Schaeffer 
said, "that reflects a basic misunderstanding of the difference between 
for-profits and not-for-profits."

Mr. Landgraf rejected such criticism. "We are not doing anything 
inappropriate," he said. "What would be inappropriate would be to lose 
money, or be inefficient in our market space."

*****The excerpt reprinted by the Sacramento Bee ends here*****

He said that in some cases, specific payments were needed to recruit key 
people or to cover their relocation costs.

Yvette Donado, who joined E.T.S. as a vice president for human resources 
five weeks before the close of the fiscal year in June 2001, received 
$25,700 in salary and got a $215,306 one-time payment.

"That represented what I was leaving behind, which was a 26-year career for 
a technology company that had profit-sharing and all kinds of perks that 
don't exist in this environment," Ms. Donado said.

 Two other officials who joined E.T.S. in January 2001 ? Arthur Chisholm, 
vice president for information systems and technology; and Leslie Francis, 
vice president for communications and public affairs ? were also given 
one-time payments ($151,237 and $178,355, respectively) that substantially 
exceeded their salaries.

Others who had been at the service well before Mr. Landgraf's arrival 
received large incentive payments. For example, John Yopp, a vice president 
for graduate and professional education, had base pay of $200,861 and a 
bonus of $191,157. Mari Pearlman, a vice president in the service's 
teaching and learning division, earned $200,783 and received a bonus of 
$164,381.
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Mr. Landgraf said the service would probably keep using incentives, 
depending on its performance.

Bonuses are not unheard of in the academic and foundation world, but they 
are usually far more modest, amounting to perhaps 5 or 10 percent of base pay.

Frank R. Gatti, the chief financial officer of E.T.S., though, maintained 
that the service should not be compared to foundations or colleges.

"Other than the fact that the word `education' appears in our name, we are 
less comparable to academic institutions than to large health care systems, 
which have to compete for talent with for-profits," he said. At larger 
nonprofit hospitals, it is not uncommon for the chief executive to be paid 
more than $1 million a year.

Through much of the 1990's, E.T.S. lost money. In the fiscal year ended 
July 1998, it had a deficit of $8.2 million. In 1999, the deficit was 
reduced to $206,256, and in 2000 ? the year before Mr. Landgraf arrived ? 
the service had an operating surplus of $29 million, which grew to $34 
million last year.

E.T.S. has expanded rapidly in recent years, moving aggressively into the 
huge new market for state assessment tests created by the federal No Child 
Left Behind Act, which requires that every student from third grade through 
eighth grade be tested every year.

Mr. Landgraf said that in the next four years, the service's main business 
would cease to be the SAT, which it produces for the College Board. 
Instead, he said, E.T.S. would probably earn 40 percent of its revenues 
from international testing, with large contracts in China and India, and 
another 40 percent from state assessment testing. E.T.S. is also expanding 
into professional development for teachers.

Traditionally, testing in kindergarten through 12th grade has been the 
domain of textbook publishers, but E.T.S. has won the contract to handle 
all of California's assessment tests, as well as some testing in New 
Jersey, Georgia and Maryland.

Like E.T.S., the College Board has recently moved in a more commercial 
direction, creating a for-profit subsidiary, collegeboard.com, which earns 
money by selling products to help students prepare for the SAT ? and by 
charging students and parents extra fees for services like getting scores a 
few days early or being notified of the scores by telephone.


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George Sheridan