Can a Mississippi university include a retention bonus in a public university president's employment contract, paid through a private foundation?
Plain-English summary
The IHL Board wanted to add retention bonuses to its four-year employment contracts with university presidents and chancellors. The structure: if the president stayed for a specified period, the president would get an additional sum at the end of the contract, with the funds coming from a university-affiliated foundation through the university to the president. The Commissioner of Higher Education asked whether this was lawful.
The AG worked through the Mississippi Constitution's two relevant prohibitions:
- Article 4, § 66: No law granting a donation or gratuity in favor of any person or object shall be enacted except by two-thirds vote.
- Article 4, § 96: The Legislature shall never grant extra compensation to a public officer, agent, servant, or contractor after service rendered or contract made.
These provisions, read together with case law (Nichols v. Patterson 1996, Golding v. Salter 1958), prohibit using public funds for bonuses paid after services have been rendered. But Mississippi AG opinions had developed a three-part test for permissible incentives:
- Contracted for in advance of the services being performed.
- Determined by objective standards of measurement.
- Earned by personal services performed by the employee.
The proposed retention bonus structure could fit if the contract included the incentive provision before the work began, the metrics for earning it were objective (tenure for the specified period), and the payment was earned through actual performance of presidential/chancellor duties.
A footnote noted that the foundation's donation to the university was a separate question. Foundations are private entities, and donations from foundations to public universities can be made for purposes authorized by law. Once received by the university, the funds become public funds and must be treated like other public money. The opinion did not opine on the foundation side; it addressed only the IHL Board's contracting authority.
Currency note
This opinion was issued in 2021. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
What the opinion said for each audience, at the time
For Mississippi public university presidents and chancellors
The 2021 opinion gave a clear path for retention bonuses: properly structured incentive contracts were permissible. Presidents negotiating contracts could include performance-based or tenure-based bonuses, provided the agreement was in place before the work began and the metrics were objective.
For the IHL Board and other public boards setting executive compensation
The three-part test (advance contract, objective standards, personal services) is a useful framework for any incentive compensation in Mississippi public employment. Boards designing compensation packages for senior officials needed to:
1. Put the incentive in the contract before the period of performance starts.
2. Spell out the metrics clearly: time-based (e.g., "remain employed for 36 months"), performance-based (e.g., "achieve specified enrollment growth"), or both.
3. Tie payment to actual performance of duties.
For university-affiliated foundations
The foundation-funded retention bonus structure raised tax and governance questions. The foundation is typically a 501(c)(3) supporting organization, not a public agency. Foundation donations to the university for specific authorized purposes are common and legitimate. The foundation's discretion in making the donation is a foundation-board decision; once made, the funds are subject to public-funds rules.
For higher-education attorneys
The opinion is a useful citation for the common scenario of foundation-funded executive incentive pay. The three-part test from Permenter (2015) had been the AG's framework for years; this opinion confirmed its application to retention bonuses funded through foundation channels.
For Mississippi taxpayers
The 2021 framework let public universities offer competitive executive compensation packages without violating the constitutional prohibition on after-the-fact bonuses. The structure preserved the public-purpose rationale: the bonus was paid for actual services rendered under a pre-existing contract, not as a gift after the fact.
Common questions
Q: Why does Mississippi prohibit "extra compensation" after service rendered?
A: Article 4, § 96 of the Mississippi Constitution was designed to prevent post-hoc bonuses to public officials, which the framers viewed as susceptible to corruption (e.g., a legislator gives a friend a contract, then a year later the legislature gives the friend a bonus to enrich them further). The provision is part of Mississippi's reform-era constitution.
Q: How does the three-part test reconcile this with modern compensation practices?
A: The test focuses on the timing and structure of the incentive. If the incentive is contracted before the period of performance, then payment after the period is fulfilling a pre-existing obligation, not a post-hoc bonus. If the incentive uses objective standards, then payment is not a discretionary windfall. If the incentive is earned through personal services, then it is true compensation for work done. All three together mean the payment is compensation, not a donation.
Q: What if the contract is renegotiated mid-term to add an incentive?
A: Mid-term addition could violate the test. The incentive needs to be in place before the period of performance starts. A retroactive bonus added after the work has begun would not satisfy the timing prong. Some flexibility might exist for amendments that reset the contract for a new performance period (e.g., a new four-year term), but that would need careful structuring.
Q: What's an "objective standard of measurement"?
A: Something measurable without subjective judgment. Examples:
- Time-based: "Remain employed for 36 months."
- Outcome-based: "Achieve enrollment growth of X% by year three."
- Compliance-based: "Maintain accreditation in good standing."
Subjective standards (like "performs above expectations") would be harder to defend as "objective."
Q: How does the foundation-to-university payment flow work?
A: Typically: (1) the foundation, as a private 501(c)(3), accepts donations from donors who want to support the university; (2) the foundation makes a donation to the university for a specific purpose authorized by university policy and state law (here, executive compensation); (3) the university receives the donation as public funds and uses them to pay the executive's incentive under the contract. Each step has its own governance requirements.
Q: Could donor restrictions on foundation funds limit how the bonus is paid?
A: Yes. Foundations operate under donor-restricted gift agreements, and a donation made for executive compensation must be clearly authorized in the donor agreement. If a donor specified that funds were for student scholarships, those funds couldn't be redirected to executive bonuses. This is a foundation-side issue, not a state-AG issue.
Background and statutory framework
Mississippi's Constitution, drafted in 1890, includes several anti-corruption provisions tied to that era's reform agenda. Sections 66 and 96 of Article 4 are part of that package, designed to prevent self-dealing in public compensation and donations. The Mississippi Supreme Court has read these provisions strictly: Nichols v. Patterson (1996) and Golding v. Salter (1958) both confirm that using public funds for post-hoc bonuses violates the constitution.
But strict application of those provisions would have made modern public-sector compensation impossible. Performance bonuses, retention incentives, and similar tools are standard in executive compensation. So the AG (and presumably any reviewing court) developed the three-part test to distinguish lawful incentive compensation from prohibited post-hoc bonuses. The Permenter 2015 opinion was the latest in a line of opinions establishing the test.
The university-foundation structure is common in higher education across the country. Public universities have private foundations that handle donor relations, fundraising, and sometimes executive compensation supplements. The structure lets universities pay competitive executive salaries without exclusively using state appropriations. Mississippi's universities follow this national pattern.
Citations and references
Constitutional provisions:
- Miss. Const. art. 4, § 66, prohibition on donations or gratuities (legislative two-thirds vote required)
- Miss. Const. art. 4, § 96, prohibition on extra compensation after service rendered
Cases cited:
- Nichols v. Patterson, 678 So. 2d 673 (Miss. 1996), application of constitutional anti-bonus provisions
- Golding v. Salter, 107 So. 2d 348 (Miss. 1958), same
Prior AG opinions cited:
- MS AG Op., Permenter (Oct. 30, 2015), three-part test for permissible employee incentives
- MS AG Op., Bryant (Nov. 6, 1998), university foundations are not state political subdivisions; foundation funds become public when paid to universities
- MS AG Op., Snell (Aug. 17, 2018), same
Source
- Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
- Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2021/07/A.RankinsJr._July-23-2021-Incentive-Pay-in-Employment-Contracts.pdf
Original opinion text
July 23, 2021
Alfred Rankins, Jr., Ph.D.
Commissioner of Higher Education
Mississippi Institutions of Higher Learning
3825 Ridgewood Road
Jackson, Mississippi 39211
Re: Incentive Pay in Employment Contracts
Dear Dr. Rankins:
The Office of the Attorney General has received your request for an official opinion.
Background
According to your request, the Mississippi Board of Trustees of State Institutions of Higher Learning ("Board of Trustees") enters into four-year employment contracts with the public university presidents/chancellors ("employees"). The Board of Trustees is interested in including in the employment contract an additional provision that would provide that an employee would be paid an additional sum at the end of the four-year contract period if the employee remains in the position of president/chancellor for a specified period of time. If the employee remains employed for the required period of time, the additional sum would be provided by a university affiliated foundation to the university, to then be paid to the employee by the university.[1] You state that the purpose of this additional sum would be to retain the employee for the full period of the contract and avoid losing the employee to another university thereby promoting stability in leadership within the current administration.
Issue Presented
May the Board of Trustees include a provision in its employment contracts that provides an additional sum to be paid if the employee remains employed for a specified period of time?
Brief Response
Incentive payments may be included within contracts. A public body may pay employee incentives, provided that the incentives are contracted for prior to the date when services are to be performed, are determined in accordance with objective standards of measurement, and are earned by personal services performed by the employee.
Legal Analysis
Section 66 of the Mississippi Constitution provides:
No law granting a donation or gratuity in favor of any person or object shall be enacted except by the concurrence of two-thirds of the members elect of each branch of the Legislature, nor by any vote for a sectarian purpose or use.
Section 96 of the Mississippi Constitution provides:
The Legislature shall never grant extra compensation, fee, or allowance, to any public officer, agent, servant, or contractor, after service rendered or contract made, nor authorize payment, or part payment, of any claim under any contract not authorized by law; but appropriations may be made for expenditures in repelling invasion, preventing or suppressing insurrections.
Using public funds to grant bonuses after services have been rendered would be an unlawful donation in violation of Sections 66 and 96 of the Mississippi Constitution. Nichols v. Patterson, 678 So. 2d 673 (Miss. 1996); Golding v. Salter, 107 So. 2d 348 (Miss. 1958). This office has consistently opined that to avoid such a violation, a public body may pay employee incentives provided that the incentives: (1) are contracted for prior to the date services are to be performed, (2) are determined in accordance with objective standards of measurement, and (3) are earned by personal services performed by the employees. MS AG Op., Permenter at *1 (Oct. 30, 2015).
Whether the proposed contract meets these requirements is a determination that must be made by the Board of Trustees.
If this office may be of any further assistance to you, please do not hesitate to contact us.
Sincerely,
LYNN FITCH, ATTORNEY GENERAL
By: /s/ Beebe Garrard
Beebe Garrard
Special Assistant Attorney General
[1] We offer no opinion on the donation by the foundation, which we understand to be a private entity. However, we note that donations to a public entity may be made and accepted for specific purposes authorized by law. Once the funds are received by the university, they become public funds and must be treated in the same manner as other public funds. MS AG Op., Bryant at 3 (Nov. 6, 1998) ("The foundations are not agencies or political subdivisions of the State of Mississippi, and the funds raised and collected by them are not public funds as defined by the statute until such time as they are paid over to the universities."); MS AG Op., Snell at 1 (August 17, 2018).