If you were a public school and Wall Street didn’t like you that might not seem like such a big deal. What do financiers know about educating children? It’s a big deal, however, if you are K12, Inc., and enticing investors to buy into your low-cost, high yield “cyber school” idea is key to your bottom line.
At K12, Inc.’s stockholder meeting in December, its own investors criticized the schools’ lamentable academic performance and voted down its executives’ proposed salary increases. This is just the latest piece of bad news, which has been coming in rafts for K12 since 2013.
As K12’s executives were being rebuffed by stockholders inside the law offices of Latham & Watkins, in Washington, D.C., outside K12 was picketed by members of the California Teachers Association for more or less the same list of educational shortcomings, as Diane Ravitch noted.
Some editorial boards crow when they receive criticism from two opposing sides of a controversial issue. “If both sides are unhappy we must be doing something right” is the familiar refrain, as if there are only ever two sides to an issue or the sides have equal merit.
In the case of K12, however, it is hard not to wonder how much longer the company can withstand this loud unanimity of animus–even a firm Wall Street insiders like convicted fraudster Michael Milken helped launch, as the Center for Media and Democracy (CMD) detailed in “From Junk Bonds to Junk Schools: Cyber Schools Fleece Taxpayers with Phantom Students and Failing Grades.”
No major supporters have yet publicly called for pulling the plug, but anti-public education zealots like the billionaire Walton family and the Koch brothers have plenty of other places to invest in to try to bring down “government schools.”
Big, Big Payouts to Execs at Taxpayer Expense
In its recommendation that shareholders vote against the pay proposal, the advisory firm Glass Lewis & Co. said K12 exemplifies a “substantial disconnect between compensation and performance results.” Glass Lewis gave the company an “F” for how it paid its executives compared to peers.
In 2015, K12 CEO Nathaniel Davis was making $5.3 million and CFO James Rhyu was making $3.6 million. Their base salaries were $700,000 and $478,500, respectively, which were dwarfed by additional pay and stock for their “performance.” (See more details on their total compensation in the pdf uploaded below.)
In all, K12’s five highest paid executives received a total of more than $12 million in compensation last year. That’s one of the reasons CMD has called K12 Inc.’s former CEO, Ron Packard, the highest paid elementary and secondary school educator in the nation.
Nearly 90% of K12’s revenues–and thus its huge pay for executives–comes from Americans’ state or federal tax dollars.
K12 Inc. also pays each member of its Board of Directors between $155,000 and $216,000 annually for a few hours of work each year—far more than local school board members make for much more time spent in general. (See uploaded K12 proxy filings below for the details.)
While K12’s promoters love to mention that it is a publicly traded company, it is also trading at its lowest stock price since 2010, down 75 percent from its September 2013 peak.
Meanwhile, a new report from Stanford University’s Center for Research of Education Outcomes (CREDO) found that online charters do a very poor job of educating children. In general, students in online charters lose 42 days of reading in a year, and 180 days of instruction in math. And there are only 180 days of instruction in most public school years.
Enrollment has also dropped almost 5 percent from its peak. No less a business authority than Bloomberg Business investigative reporter John Hechinger presented grim prospects for K12 as of late 2014, and no one has revised them upward.
Millions in K12 Ads at Taxpayer Expense Too
This decrease in business has come despite massive advertising and marketing expenditures by the virtual schools industry. K12 has spent untold millions in public funds on ads—a luxury budget item that traditional public schools are not permitted even when competing with K12 for students.
It spent at least $20 million on ads in 2012 alone, but it has not publicly disclosed ad spending in recent years even as its ads have become more ubiquitous in markets like Wisconsin and Arizona, for example. K12 does not disclose its ad budget in its public annual report.
Plus Taxpayer Money Helps K12 Pay to Play with ALEC Politicians
K12 also spends taxpayer money lobbying state and federal officials. It recently got a seat, for example, on the corporate board of the American Legislative Exchange Council (ALEC), where for years it has also paid for a seat and vote on ALEC’s “Education and Workforce Development” Task Force, which advances a “cash for kids” lobbying agenda.
ALEC corporations spend tens of thousands of dollars each year for such access to lawmakers, and K12 has also paid many thousands of dollars to underwrite some of ALEC’s docket of events for legislators and lobbyists.
Through the ALEC Task Force, K12 has actually had an equal vote with state legislators on so-called “model” bills to divert taxpayer funds away from traditional public schools toward the objectives of ALEC’s private sector funders, to help their bottom-lines and/or legislative agenda.
ALEC’s “Virtual Public Schools Act,” for example, even allows virtual schools to be paid the same amount per pupil as traditional public schools even though operations like K12 have no bricks and mortar school house or desks or air-conditioning or gyms, etc., to maintain.