Special pay increase and endowment performance

Highlights

• Special 3% base pay increase for campus-based, benefits-eligible staff and faculty, effective December 1, 2021
• Made possible by exceptionally strong endowment performance

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Dear staff and faculty colleagues,

Each year around this time, MIT and other private universities announce the annual return on their endowment investments. I do not usually write to you with the news. But this year, because MIT’s results are exceptionally positive, I want to let you know how we plan to respond.

You can read more in the MIT News story.

This year’s unusual endowment returns

Like many other institutions, we experienced extremely strong returns. In the fiscal year ending June 30, 2021, our unitized pool of endowment and other funds (which contains 99% of our endowment) achieved a 55.5% return, its strongest annual performance in more than 20 years. This translates to an increase of $9 billion in our endowment, bringing its value to $27.4 billion. As a result, we will depart from our usual formula for determining the endowment payout, making more funding available to advance key Institute priorities.

The returns are striking ­– but what’s important is what they will allow us to do.

First, however, it helps to be clear about what the endowment is, what it isn’t and what role it plays in the life of the Institute.

The endowment: What it is, what it isn’t and why it’s important

We often talk about “the endowment” as a single entity, but it’s actually made up of thousands of individual funds. These funds were created over time, mainly by gifts from our alumni and friends. Most of the funds are permanently designated by the donor for a specific purpose, such as scholarships or a professorship in a certain field. We cannot spend the gifts themselves; in other words, the endowment is not a massive checking account. 

However, because the funds are invested, they grow in value. So each year, using an economics principle called the “Tobin Rule,” we take a portion of the returns on these investments to help cover the Institute’s current needs.

The portion we draw is crucial to our operations: In the last fiscal year, the investment pool containing our endowment provided $851 million, or about 30% of our campus operating revenues. This helped cover everything from utilities, to support for teaching and learning, to the sudden need for a community-wide Covid testing system. And, of course, these revenues are essential in fulfilling our longstanding commitment to undergraduate financial aid; MIT is one of only five U.S. colleges that is need blind in its undergraduate admissions for all students, domestic and international, and that covers each family’s full demonstrated need, a position that depends heavily on the strength of our endowment.

What we’re doing differently this year

Because fiscal year 2021 returns were so strong, we judge that we can make a rare exception from using the Tobin Rule and deploy these gains more quickly – while still maintaining adequate resources within the endowment to meet future needs and cope with future ups and downs in its performance. 

Taking this step will provide an estimated $286 million in additional resources to support the work of our community in the coming fiscal year. It will also set a new baseline for what we can expect in endowment support for the budget in​ following years. Approximately 60% of those funds are restricted to the purposes set by their donors. The remaining 40% is unrestricted.

We make this calculation with the clear knowledge that the endowment is not guaranteed to grow every year. For instance, the last time it returned such a large positive percentage was fiscal year 2000; the three following years saw returns averaging -4.3%.

For context: Over the last decade, MIT has been able to increase endowment support for campus operations by an average of 4.5% each year. Because of this year’s exceptional returns, for fiscal year 2023, we will allow an increase of 30%.

Supporting our people, tackling priority needs 

In deciding how to use these funds, I would like us to focus on support for MIT’s amazing talent – staff, faculty and students – and strengthening operations that support cutting-edge research. To begin with:

• I am delighted to announce that campus-based, benefits-eligible staff and faculty hired on or before July 1, 2021, will receive a special 3% base pay increase, effective December 1, 2021. More information on eligibility and timing is available on the HR website. This special increase is in addition to annual salary review increases that take place on designated schedules. MIT’s labor relations team is currently in discussion with campus union leaders about this program.
• We are also using this opportunity to provide a special 3% stipend increase for all RAs, TAs and graduate students with fellowship appointments administered by MIT; postdocs will also receive an increase. Importantly, for the continued health of our research enterprise, we will balance the increase in research assistant stipends with a 3% increase in the general Institute budget tuition subsidy provided to all research contracts and grants to maintain research competitiveness. Chancellor Melissa Nobles wrote to graduate students with details a short while ago, and Vice President for Research Maria Zuber sent a similar note to postdocs.

In making further decisions about how best to use the new funds, we will pay close attention to:

• The thoughtful reports of our visiting committees, which examine and advise on every academic program and other major activities at the Institute
• The upcoming recommendations of Task Force 2021 and Beyond, which has identified a range of pressing needs and exciting opportunities
• And the range of clear community priorities, including those outlined in
  • The draft Strategic Action Plan for Diversity, Equity and Inclusion
  • The recommendations of the MIT working groups formed in response to the landmark National Academies’ report on sexual and gender harassment in academia
  • And Fast Forward: MIT's Climate Action Plan for the Decade

Above all, we will rely on the same budget process we follow every year to understand, balance and support the needs of every operating unit across our community.

I close by offering thanks and admiration to Seth Alexander and his team at the MIT Investment Management Company. Their skill and focus over time are powerfully magnifying our ability to fulfill MIT’s great mission.

Sincerely,

L. Rafael Reif