Report 2016-130 Recommendation 11 Responses

Report 2016-130: The University of California Office of the President: It Failed to Disclose Tens of Millions in Surplus Funds, and Its Budget Practices Are Misleading (Release Date: April 2017)

Recommendation #11 To: University of California

To ensure that its staffing costs align with the needs of campuses and other stakeholders, by April 2018 the Office of the President should determine how to restructure salary ranges to make certain the ranges encourage employee development and ensure pay equity.

Annual Follow-Up Agency Response From October 2018

On September 26, 2018, the Regents Governance and Compensation Committee endorsed the plan adopted by the President and COO for narrowing the University of California Office of the President Salary Ranges as described in the documents found at the link below. The plan, which was initially reviewed with the Regents' Working Group on UC Office of the President Salary Ranges (previously the Regents' Working Group on Executive Compensation), also includes an adjustment of the UCOP salary midpoints based on overall labor market salary movement using the approved method for weighing comparable public and private sector pay data for non-executive staff. UCOP has not moved their salary ranges during the last two years, leaving them behind the labor market in salary range movement. The approved method includes the incorporation of salary data from the State and CSU for operational staff and academic administrative positions at UC.

The link below provides the Regents' item that was presented for endorsement:

http://regents.universityofcalifornia.edu/regmeet/sept18/g9.pdf

Additional details are provided in the" UCOP Non-Represented Staff Salary Range Review" Presentation used to gain the Regents' endorsement.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

On September 26, 2018, the Office of the President presented its plan for narrowing their non-represented staff salary ranges to the Regents Governance and Compensation Committee. The plan fulfills our recommendation that the Office of the President determine how to restructure its salary ranges. The Office of the President contracted with a third party vendor to compare their salary structure to comparable universities. The review agreed with the analysis in our audit report and found that the Office of the President's current salary structure had a wider range between the minimum and maximum salary for its pay grades than comparable universities. For example, the Office of the President's lowest pay grade ranged from a minimum of $30,400 to a maximum of $61,800 for a range width of 103 percent. The Office of the President's highest pay grade ranged from $127,100 to $351,500 for a range width of 177 percent. Under its proposed plan, the Office of the President will reduce the width of its salary ranges to comply with best practices. For example, the new plan reduces the size of its lowest pay grade to 60 percent and the size of the highest pay grade to 105 percent.

1-Year Agency Response

Career Tracks is the UC classification and grade structure that provides staff with: a clear and transparent system for charting and understanding options for a career path anywhere in UC; details of the job requirements of their current position and any other position they might be interested in pursuing; and online access to all job descriptions, job requirements and salary ranges.

Career Tracks uses a market-based salary structure, meaning that external labor market salaries for a position are the primary basis for establishing job value which drives assignment of salary ranges. Salary data for comparable positions at the State and CSU will be included in this market analysis, as described in recommendation #10, and as approved by the Regents. This market-based structure promotes pay equity and is legally defensible because ranges are linked to external factors rather than to individual employees or internal pay practices. The majority of salaries will fall at or near the 50% percentile (midpoint), but the breadth of the salary range accommodates a range of skill levels for a job: those just beginning their career receive a salary in the lower portion of the range, and those who have deep relevant knowledge, skills and technical expertise greater than the "average" worker could, in a given role, be paid higher in the salary range, above the midpoint.

Additional details are provided in the Overview of Methodology for Staff Jobs excluding SMG and Represented Staff submitted to the CSA, and the Regents item:

http://regents.universityofcalifornia.edu/regmeet/mar18/g2.pdf. The methodology described above will be the basis for narrowing the salary ranges by the April 2019 CSA recommendation. UCOP has begun identifying several possible scenarios for narrowing ranges based on the Regents' approved method for weighing comparable public and private sector pay data for non-executive staff. Analysis of the possible scenarios will begin in the next fiscal year.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Although the Office of the President asserts this recommendation is fully implemented, we disagree. It was unclear to us what actions the Office of the President planned to take to restructure its salary ranges because its response largely reiterates how its current salary setting system works. When we followed up with the Office of the President's Executive Director of Human Resources, she was unable to provide any evidence of any action taken regarding a determination of how the Office of the President would restructure the salary ranges and confirmed that that analysis would begin next fiscal year. Had the Office of the President started this process sooner, the results of the above analysis would be responsive to our recommendation. Thus the status of this recommendation is no action taken until we can evaluate the actionable steps the Office of the President will take to narrow its salary ranges.

We expected to see an analysis of the salary range widths the Office of the President uses and analysis of how they can bring their salary ranges to a width that is in line with compensation best practices. According to the Society for Human Resource Management (SHRM), a traditional salary range width is commonly 30 percent to 40 percent based on the midpoint. In other words, for a 30 percent salary range, SHRM's guidance recommends that an agency calculate 15 percent of the midpoint and use the results of that calculation to establish the salary range minimum and maximum. However, the Office of the President commonly uses salary ranges with a width that is approximately double that guidance. For example, in our report we identified that for a financial analyst position the Office of the President established a salary range width of 68 percent with 34 percent on either side of the midpoint. To address this recommendation the Office of the President could have performed an analysis to determine the appropriate target width for its salary ranges.

6-Month Agency Response

Options and recommendations for including public data and for assigning a weight have been presented to UCOP leadership for review and feedback.

Survey sources are being reviewed for analyzing and updating Market Reference Zones for Senior Management Group positions.

Analysis of UCOP salary ranges is being conducted.

California State Auditor's Assessment of 6-Month Status: Pending

The status of this recommendation is pending the Office of the President's actions related to restructuring its salary ranges. To date the Office of the President has not provided us with sufficient documentation to allow us to understand the status of this recommendation. However, the concerns we discuss in recommendation 10 also apply to this recommendation.

60-Day Agency Response

A work group of compensation and Human Resource experts from OP and campuses/medical centers has been formed and will be working to address salary range structure as it relates to employee development and assurance of pay equity. A project plan has been finalized. A call with CalHR compensation is scheduled for information collection regarding the State's approach to employee development.

California State Auditor's Assessment of 60-Day Status: Pending

The status of this recommendation is pending the Office of the President's actions related to restructuring its salary ranges.

All Recommendations in 2016-130

Agency responses received are posted verbatim.