The informational hearing came after CSU trustees decided this summer to pay $400,000 to San Diego State University's new president - about $100,000 more than his predecessor.
Most of the controversy surrounding the pay increase came because it was approved on the same day trustees voted to increase students' tuition by 12 percent. But legislators and the Legislative Analyst's Office on Wednesday also called into question CSU's decision to supplement the new president's $350,000 state pay with $50,000 from the campus' nonprofit foundation.
"Those same funds could be used for other things that benefit the university," said Judy Heiman of the Legislative Analyst's Office. "So it is still a trade-off when the university chooses to use those foundation funds for executive compensation rather than, say, for programs to improve student retention or student success."
Sen. Alan Lowenthal, D-Long Beach, said the use of foundation funds for executive compensation also raises questions about accountability. If presidents get part of their salaries from foundations, would they become increasingly accountable to private interests, rather than the state?
Leaders at CSU have supplemented executive pay using private funds on three other occasions.
Cal Poly San Luis Obispo President Jeffrey Armstrong's $380,000 salary includes $30,000 from the Cal Poly Foundation. San Jose State University President Mohammad H. Qayoumi's $353,200 salary includes $25,000 from the SJSU Foundation, and CSU Chancellor Charles B. Reed's $451,500 salary includes $30,000 from the CSU Foundation.
Nathan Brostrom, UC executive vice president for business operations, said at the hearing that UC has not used foundation money to pay the president or chancellors, though it's a topic they will explore.
CSU trustees Roberta Achtenberg and Lou Monville told lawmakers that they agree they need to be careful about using foundation funds to boost salaries. Monville leads the CSU Special Committee on Presidential Selection and Compensation.
"Most members of our board are hesitant to see widespread use of foundation dollars to pay for presidential salaries," Achtenberg said. "It sends the wrong message."
Also a hot topic during the hearing were the lists of institutions that the California universities compare themselves with when deciding whether CSU or UC salaries are above or below market.
Gov. Jerry Brown, among others, raised questions about these salary surveys in an interview with The San Diego Union-Tribune this summer.
"I think they're rigged," Brown said. "You've got to deconstruct them. They create a false paradigm that ensures that college presidents are always 'underpaid.'"
The special committee on executive compensation at CSU plans to unveil a new group of comparison universities by Oct. 12, with the goal of reaching a final decision on the groups by December. UC has no current plans to change its list.
Lowenthal and Sen. Elaine Alquist, D-San Jose, told CSU officials they wanted to have state input into which universities would end up on the new list.
Lowenthal pointed out that CSU's current comparison list includes Arizona State University, where the campus president is among the highest-compensated public university executives in the country, according to a recent study by The Chronicle of Higher Education. Arizona State President Michael M. Crow costs the university $728,350 per year, including his base pay, retirement costs and other provisions.
Lowenthal also observed that Arizona State grants Ph.D. degrees, while CSU campuses do not.
"We have chosen some of the highest-paying institutions to be in the comparable (group)," Lowenthal said. "How did that happen? Where does that fit into what is in the best interest of the public?"
Achtenberg said at the hearing that the new groups of comparison institutions "will put a downward pressure on salaries."
Heiman, from the Legislative Analyst's Office, said state leaders should keep in mind other policy considerations: Should campuses be committed to getting the "very best and brightest" at any cost? What are the cons of participating in bidding wars for top leaders? Do taxpayers and students end up paying more and more for the same services?
Heiman closed the session by saying the Legislature ideally would be more concerned with outcomes - such as graduation rates - to judge whether universities are using their resources well. But without clear statewide goals for such outcomes, lawmakers tend to rely on "proxies" such as executive salaries, she said.
Read more California investigative reports at CaliforniaWatch.com.