Hedge-Fund Backers Pay Success Academy CEO Eva Moskowitz via a Special Nonprofit

In June 2006, New York Magazine published this six-page article about hedge funder Joel Greenblatt’s $1,000-per-student investment in New York’s PS 65Q in order to improve student achievement, which was measured using standardized test scores. Greenblatt then expanded on his investment in school improvement by starting his own charter with a hedge-fund partner, John Petry: Harlem Success Academy. For this venture– one they hoped to replicate– they hired former City Council member, Eva Moskowitz. An excerpt:

On a weekday morning in the spring of 2002, Joel Greenblatt took a radical detour from his usual commute. Instead of riding the Long Island Rail Road from his home on the North Shore to his office in midtown, the 44-year-old hedge-fund manager hired a car service to deliver him to P.S. 65Q, a small, struggling elementary school in working-class Ozone Park, Queens. Little about his past pointed to this visit. Over the previous two decades, Greenblatt had quietly built a reputation as one of Wall Street’s most successful stock-pickers: He had steered his fund, Gotham Capital, to a 40 percent average annual rate of return (it’s now worth about $1.6 billion), and as the author of investment manuals like You Can Be a Stock-Market Genius (Even If You’re Not Too Smart)—the predecessor to his current best seller, The Little Book That Beats the Market—he’d become something of a guru to a generation of elite fund managers. But that morning, Greenblatt was taking a break from Wall Street to focus on the less glamorous world of New York public schools. …

At the time of Greenblatt’s visit, P.S. 65Q was staring down the loss of an important grant. Under Iris Nelson, the principal who had started at the school a year after it had opened, P.S. 65Q had secured government funds for a reading program called Success for All. The program had led to some promising gains in reading scores, but the grant was expiring at the end of the year. Greenblatt, who had developed an interest in public education only a few years earlier, had become a fan of Success for All and was looking for a school where he could introduce or broaden the program to boost overall achievement. The Success for All Foundation’s director, Bob Slavin, arranged a meeting between Greenblatt and Nelson to try and make a match.

The principal and her staff hadn’t been told much about Greenblatt—just that he was a wealthy banker interested in discussing a contribution. In Nelson’s office, Greenblatt didn’t let much time pass before making it clear his visit wasn’t about just a grant. “I want to keep spending money,” he said, “until everyone can read.” …

For weeks, Nelson fretted over how much to request. Finally, she decided to take Greenblatt at his word: To keep everyone from falling behind, she calculated, it would take an incremental $1,000 per student per year for five years, or $2.5 million.

Greenblatt had clearly done his homework. “That,” he told her later, “is exactly what we thought you’d need.” …

Today, thanks to Joel Greenblatt’s friendly takeover, P.S. 65Q is a turnaround story worthy of a Harvard B-school case study. Perhaps no school in New York City has ever bounded so swiftly from abject failure to unqualified success. From 2001 to 2005, the proportion of fourth-graders passing the state’s standardized reading test doubled, rising from 36 to 71 percent of the class—and since then, the students’ performance has only gotten better. Nearly every child who has been at the school for three years or more now reads and does math at their proper level or beyond…. …

None of this would have happened, of course, without Greenblatt….

Even if the Greenblatt model could be replicated, should it be? Success for All, some educators argue, is too scripted. Although evidence shows that the program’s emphasis on basic skills does help kids learn to read, a generation of New York educators remains committed to a more inquiry-based, or “whole language,” approach, in which kids learn from context and read actual books earlier, developing an enthusiasm for reading that “drill and kill” strategies don’t foster, and picking up the technical skills of reading along the way. Klein has taken unprecedented steps to bring skills-based learning into the New York schools, but he remains unwilling to ditch his entire curriculum for something as rote as Success for All.

Soon enough, we’ll see if Greenblatt can crank out his next franchise. Next year, he and one of his Gotham Capital partners, John Petry, are planning to open the Harlem Success Academy, a charter school approved by the state in December. Early plans are for a school day that runs from 8:20 a.m. to 5 p.m. and includes an infusion of the arts—even yoga and karate classes. Success for All will be the curriculum, and the same sort of supplementary tutoring and data management will be used. Bob Slavin will be on the board. Iris Nelson has been hired as a consultant both at the charter school and at P.S. 65Q (her bonus from the Pathfinder Award bumped up her pensionable salary to the point where it made more sense for her to retire than stay working at the school). And the executive director of the charter school is Eva Moskowitz, the former City Council member who chaired the education committee and often proved a tenacious foil to the mayor, the chancellor, and the teachers union.

What makes the Harlem project especially interesting is that its budget is the same amount the city spends at its schools (the city gives charter schools 75 cents on the dollar; Greenblatt and Petry will make up the rest out of their own pockets). “P.S. 65 spends $12,500 per child without my $1,000,” he says. “What I’m trying to prove is that for the same money they’re spending in the city—not a $1,000 more—you can do what we’re doing at P.S. 65Q.”

Even if the Harlem school is as successful as P.S. 65Q, Greenblatt says that he doesn’t intend for every school in the city to do things his way overnight. But just as the mayor and other charter-school proponents aim to foster innovation that could be duplicated elsewhere (Bloomberg aims to add 75 charter schools in the next four years), Greenblatt hopes his experiments in education will act as a wedge. If he can produce excellence at one school—and another and another—with the same money the city uses to produce mediocrity, the public, he believes, will realize that there is a better way and begin insisting on it.

“If it can be replicated enough, people won’t be able to say this can’t be done,” he says. “The public schools will have to get better or public monies will have to be spent on other choices for students in failing school districts.” Then, he says, he’ll have leveraged the education marketplace. “They’ll either have to come up with another excuse, or they’ll have to fix the problem, too.”

Greenblatt’s interest did not remain in assisting traditional public schools; his interest was in starting a charter chain. (Interestingly, PS 65Q principal Iris Nelson retired from public ed and followed Greenblatt; she is listed on Harlem Success’ principal on the school’s FY2006 return at $74K total comp; by FY2008, she was the network’s chief instructional officer at $112K total comp.)

As the New York Times also briefly captures in its December 06, 2009, article on hedge-funder investment in the Success Academy (SA) charter schools, Moskowitz did not generate the idea but was instead hired as CEO. The chain was the brainchild of Greenblatt and Petry:

Mr. Petry, 38, and Mr. Greenblatt, 52, may spend their days poring over spreadsheets and overseeing trades, but their obsession — one shared with many other hedge funders — is creating charter schools, the tax-funded, independently run schools that they see as an entrepreneurial answer to the nation’s education woes. Charters have attracted benefactors from many fields. But it is impossible to ignore that in New York, hedge funds are at the movement’s epicenter.

“These guys get it,” said Eva S. Moskowitz, a former New York City Council member, whom Mr. Petry and Mr. Greenblatt hired in 2006 to run the Success Charter Network, for which they provide the financial muscle, including compensation for Ms. Moskowitz of $371,000 her first year. “They aren’t afraid of competition or upsetting the system. They thrive on that.”

The New York Times financial info about Moskowitz’s SA beginnings does not exactly coincide with information on tax forms (details to come)– nor does it capture Greenblatt and Petry’s eventual and intriguing way of paying (and perhaps controlling their investment in) Moskowitz as CEO of their schools. But then, the Times published the above piece in 2009, and I have the benefit of writing my post in 2018.

So, let’s talk Moskowitz compensation based on SA tax forms (all of which are linked at the end of this post).

According to its FY2005 tax form, Harlem Success Academy’s official financial record began on January 10, 2006. For six months of work (January to June 2006) at 40 hrs/wk, Moskowitz was paid $75K plus $3,524 in benefits/deferred comp.

In FY2006, Moskowitz earned a little more ($77K plus $7,314 in benefits/deferred comp.) for 20 hrs/wk. However, in FY2006, she was also reportedly working 60 hrs/wk for the newly-formed nonprofit, Success Charter Network, Inc. Her FY2006 salary at the Network was $184,417 (+ $2,152 deferred). So, in FY2006, Moskowitz worked 80 hrs/wk for $270,883 in total compensation in her efforts to create that Success Academies network.

Moskowitz’s SA Total Compensation, FY2005 – FY2015

• FY2005:   $78,524 (6 mos. at 40 hrs/wk)
• FY2006: $270,883 (80hrs/wk)
• FY2007: $332,660 (70 hrs/wk)
• FY2008: $308,449 (70 hrs/wk); 4 schools
• FY2009: $403,660 (70 hrs/wk); 7 schools
• FY2010: $358,268 (60 hrs/wk); 9 schools
• FY2011: $487,703 (60 hrs/wk); 9 schools
• FY2012: $578,420 (60 hrs/wk); 23 schools
• FY2013: $481,750 (55 hrs/wk); 23 schools
• FY2014: $612,850 (55 hrs/wk); 32 schools
• FY2015: $679,178 (55 hrs/wk); 32 schools

 

From FY 2007 to FY 2012, Moskowitz’s salary was connected to a single SA-related nonprofit, Success Charter Network, which changed names in FY2012 to Success Academy Charter Schools, Inc. (SACS). By that year, SACS listed 23 schools on its return, and the nonprofit board had become notably large: 21 members, including 5 directors/officers, 10 directors, and 6 officers (one of which was Moskowitz).

In FY 2013, the number rose to 24 SACS board members: 7 directors/officers, 12 directors, and 5 officers (including Moskowitz). But there was also another change in FY 2013, and it concerned how Moskowitz was being paid: She was the only individual listed as receiving part of her compensation from SACS and the greater part from another related nonprofit, one that was started in November 2012: Success Academy Charter Schools Foundation, Inc. (reduced to “Success Foundation, Inc., in FY2013).

Success Foundation lists as its mission, “Support the mission of Success Academy Charter Schools, Inc.” However, Success Foundation appears to be little more than a means for only a handful of board members (three or four, including hedge-funder-founders Greenblatt and Petry) to exercise power over the bulk of Moskowitz’s salary.

For example, in FY2013, Moskowitz was paid $481,750 for 55 hrs/wk, with $201,750 associated with 50 hrs/wk at SACS and $280,000 for 5 hrs/wk at Success Foundation. So, at SACS, at most 23 board members (24 minus Moskowitz) would have had a say in her salary, but at Success Foundation, 4 board members (including Greenblatt and Petry) voted to pay her $280,000 for 5 hrs/wk of work– nonsensical unless one views Success Foundation as a means of a few deciding on most of Moskowitz’s annual compensation related to SA charter schools.

Moskowitz Compensation Once SA Foundation (SF) Was Created:

• FY2013: $481,420 ($201,750 SACS; $280,000 SF, incl $175,000 bonus)
• FY2014: $612,850 ($207,850 SACS; $405,000 SF, incl $300,000 bonus)
• FY2015: $679,178 ($224,178 SACS; $455,000 SF, incl $350,000 bonus)

 

What is also interesting is that if one looks at Moskowitz’s salary breakdown for FY2013 as such is recorded on the SACS tax form, one sees that the Success Foundation $280,000 is divided into $74,375 “base compensation”; $175,000 “bonus compensation,” and $30,625 “other compensation” described as follows:

Officer Eva Moskowitz was compensated $30,625 by MRM Foundation, Inc., for services rendered within her capacity as an officer of the organization.

MRM Foundation is the private foundation of Joel and Julia Greenblatt.

Thus, one could argue that a primary purpose of Success Foundation is to allow a few key board members (i.e., Greenblatt and Petry) to ultimately control Moskowitz’s pay, including bonus compensation. (If one looks at the compensation breakdown for other SA officers and highest paid employees, “bonus compensation” is also a component. However, Moskowitz is the only SA officer whose bonus compensation is as large as it is and is decided by smaller-board Success Foundation, not larger-board SACS.)

Even so, SACS board members are not without say regarding the Success Foundation board. According to the Success Foundation tax forms, “at least two-thirds of the members of the [Foundation] board of directors are appointed by Success Academy Charter Schools, Inc.”

I’m thinking that there is an understanding among SACS board members that founding millionaires Greenblatt and Petry are Success Foundation permanent appointments.

The question is whether Success Foundation was created for SA’s hedge-fund creators, Greenblatt and Petry, to be able to more freely pay Moskowitz an outsized salary, or whether Success Foundation is more a vehicle for Greenblatt and Petry to be able to fiscally rein in Moskowitz’s outsized control as the public face (and dominating presence) of their SA charter chain.

I’m guessing its the latter. But I am only guessing.

  Eva Moskowitz

______________________________________________________________________________

Success Academy Tax Forms:

• Harlem SA 2005 990
• Harlem SA 2006 990
• Success Network 2006 990
• Success Network 2007 990
• Success Network 2008 990
• Success Network 2009 990
• Success Network 2010 990
• SACS formerly S Network 2011 990
• SACS 2012 990
• SACS 2013 990
• SACS 2014 990
• SACS 2015 990
• SACS Foundation 2012 990
• Success Foundation 2013 990
• Success Foundation 2014 990
• Success Foundation 2015 990

______________________________________________________________________________________

Want to read about the history of charter schools and vouchers?

School Choice: The End of Public Education? 

  (Click image to enlarge)

Schneider is a southern Louisiana native, career teacher, trained researcher, and author of two other books: A Chronicle of Echoes: Who’s Who In the Implosion of American Public Education and Common Core Dilemma: Who Owns Our Schools?. You should buy these books. They’re great. No, really.

Don’t care to buy from Amazon? Purchase my books from Powell’s City of Books instead.