Report 2016-130 Recommendation 23 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 #23 To: University of California

To ensure that its staffing costs align with the needs of campuses and other stakeholders, by April 2019 the Office of the President should set targets for any needed reductions to salary amounts using the results from its public and private sector comparison and adjust its salaries accordingly.

Annual Follow-Up Agency Response From April 2020

The CSA recommended, and UCOP developed, a method for weighting comparable public and private sector pay data when establishing salaries for policy-covered positions. This methodology was approved by the CSA in November 2018. As part of the methodology, comparable State positions were given a minimum weight of 12.5% up to 50%. A geographic differential was applied to bring the data for staff jobs below SMG from a national level to the local Oakland labor market. Composite market data for staff positions below the SMG or executive level do not have a "size" premium applied to them. Changing the methodology did not change the fact that UCOP competes for talent in a competitive market with a variety of public and private employers as well as higher education institutions. UCOP's work was validated by independent compensation experts Sullivan Cotter and presented to the Regents.

UCOP performed an analysis for the same five positions that the CSA reviewed using data from the U.S. Bureau of Labor Statistics (BLS) and the State of California Occupational Employment Statistics (OES), and found that UCOP midpoints are within acceptable ranges for each position. For example, the Executive Assistant 3 UCOP salary range midpoint is $80,400. Our market data composite shows a salary of $81,409 (1.25% higher than the UCOP midpoint). BLS shows a salary of $80,230 (0.2% less than the UCOP midpoint). The State of California EDD Labor Market Information shows a salary of $81,276 (1.09% higher than OP midpoint). Meanwhile the State's maximum pay rate is $57,804.

This analysis has been provided to the CSA.

As recommended, UCOP applied the CSA-approved weighting of the public-sector comparators. This lowered the underlying market data by 2%. These results, combined with narrowing the salary ranges, and the additional analysis conducted using the BLS and California OES market data, confirm that the UCOP compensation model and methodology are valid.

  • Completion Date: March 2019

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

As we stated in previous assessments, this recommendation is partially implemented because policy choices the Office of the President made negated any savings it would have realized from implementing our recommendation and thus we continue to believe the Office of the President's implementation falls short. In our 2017 report, we noted that opportunities existed for the Office of the President to reduce its salary costs for administrative staff by giving a greater weight to public sector positions when it set its salaries. At the time of the audit, the Office of the President asserted that the higher education environment necessitates higher pay for its staff. Although that assertion may have merit for certain executive employees, it has much less merit for administrative staff who perform similar duties whether they are in higher education or not.

As we discussed in our April 2019 assessment, since our 2017 audit, the gap between the Office of the President's salaries and state salaries widened for four of the five administrative positions we reviewed. This was because the Office of the President chose to apply an 8 percent market adjustment to all of its salary ranges. The analysis the Office of the President performed to validate their salaries—discussed in their response above—illustrates our concerns. Four of the Office of the President's five positions have midpoints higher than the maximum salaries for equivalent state positions. When comparing the midpoints for these five positions, Office of the President employees can make between $16,000 and $62,000 more than equivalent state positions even after we increased state salaries by 4 percent to factor in the cost-of-living in Oakland.

We have concerns with the Office of the President's analysis because it does not consider that it offers stability and generous benefits, including a retirement plan, that are not always provided in the private sector. Moreover, the data the Office of the President used to validate its salary ranges is inflated by private sector information—the public sector data for California that we reviewed showed median salaries that were much lower. Ultimately, because of its choice to continue to pay administrative positions at levels much higher than comparable state positions, the Office of the President increased salary ranges and did not realize any savings that could be reallocated to campuses for the benefit of students.


Annual Follow-Up Agency Response From November 2019

The CSA recommended UCOP develop a method for weighting comparable public and private sector pay data when establishing salaries for policy-covered positions (#10). The CSA assessed this recommendation fully implemented in 2018. UCOP's extensive work in this area was also vetted with independent compensation expert Sullivan Cotter and presented to the Regents.

The approved weighting of the public-sector comparators did lower the underlying market data in establishing Career Tracks salary range midpoints by 2% overall. Based on this analysis UCOP did attempt to "set targets for any needed reductions to salary amounts." As presented to the Regents in March 2019, existing employee salaries are not impacted by lowering or raising the midpoints unless the employee's salary either falls below or above the range. Because 91% of Office of the President employees are currently below the 75th percentile of their range, the only short-term impact to the UCOP budget occurred at the lower end of the ranges once the outcome of this work was combined with narrowing the ranges per CSA recommendation #24. Lowering midpoints by 2% overall can reduce the need for budget increases in the future if positions turn over or employees reach the range maximum, but this had no material impact within the CSA's three year time-frame.

Changes to other elements of UC's compensation methodology, such as periodically making a market adjustment to the salary ranges, were not required by the CSA and do not change the fact that the inclusion of public sector data did have the desired outcome of compressing the overall compensation structure. It was this revised, lower baseline upon which a market adjustment of 8% (less than 3% per year for three years) was made. Market adjustments are consistent with UC Regents Policy 7701 which recognizes the need to effectively recruit and retain employees. Without the CSA's recommendations, the base of the adjustment would have been higher.

  • Completion Date: March 2019

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

As we stated in our previous assessment, we are assessing this recommendation as partially implemented because policy choices the Office of the President made negated any savings it would have realized from implementing our recommendation and thus we believe the Office of the President's implementation falls short. In our 2017 report, we noted that opportunities existed for the Office of the President to reduce its salary costs for administrative staff by giving a greater weight to public sector positions when it set its salaries. At the time of the audit, the Office of the President asserted that the higher education environment necessitates higher pay for its staff. Although that assertion may have merit for certain executive employees, it has much less merit for administrative staff who perform similar duties whether they are in higher education or not.

As we noted in our April 2018 assessment of recommendation 10, although the Office of the President gave state positions a higher weight in its salary setting methodology than when we conducted our audit, it added an additional 15 to 20 percent "size" premium to almost all of the non-state positions it matched, thus increasing the influence non-state positions have on the final salary for those positions and increasing the overall salary ranges. Further, as we noted in our April 2019 assessment, the Office of the President applied an 8 percent market adjustment to all of its salary ranges. Because of the 8 percent salary range increase, the Office of the President asserts it did not realize any salary range reductions from implementing our recommendation.

As we discussed in our April 2019 assessment, we performed an analysis on five positions and found that when we reduced the salary midpoints for the Office of the President positions by 8 percent and compared them to comparable state positions, the Office of the President's salary ranges were closer to the comparable state positions than they were when we conducted the audit. However, with the 8 percent salary range increase, all five of these positions continue to make significantly more annually than their state employee counterparts. For four of the five positions we reviewed, the difference between the Office of the President's new salary midpoint and the State's equivalent position was greater than the differences we found during the audit. Therefore, because of its choice to continue to pay administrative positions at levels much higher than comparable state positions, the Office of the President increased salary ranges and did not realize any savings that could be reallocated to campuses for the benefit of students.


Annual Follow-Up Agency Response From April 2019

Following the previously approved methodology to include public and private sector data, 66% of employees are at or below the midpoint for their respective positions. Of the 454 employees (34%) whose salaries were above the midpoint, placement within the salary range was appropriate in relation to the depth and breadth of their respective responsibilities. There were no needed reductions to salary amounts resulting from the comparison of the public and private sector data.

Independent consultant Sullivan Cotter reviewed these findings with the Regents' Working Group on UC Office of the President Salary Ranges on January 12, 2019, and the Regents Governance Committee on March 13, 2019. Sullivan Cotter also reviewed their identification of best salary administration practices at higher education comparators and confirmed UCOP practices are consistent with our peer institutions.

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

https://regents.universityofcalifornia.edu/regmeet/mar19/g5.pdf

  • Completion Date: March 2019

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

We are assessing this recommendation as partially implemented because policy choices the Office of the President made negated any savings it would have realized from implementing our recommendation and thus we believe the Office of the President's implementation falls short. In our 2017 report, we noted that opportunities existed for the Office of the President to reduce its salary costs for administrative staff by giving a greater weight to public sector positions when it set its salaries. At the time of the audit, the Office of the President asserted that the higher education environment necessitates higher pay for its staff. Although that assertion may have merit for certain executive employees, it has much less merit for administrative staff who perform similar duties whether they are in higher education or not.

In April 2019, the Office of the President implemented a new methodology that gives comparable state position salaries a particular weight (12.5 percent) in its calculations of the market rate for its salaries. It then conducted a market survey using this weighting methodology when applicable, and ultimately applied an 8 percent market adjustment to all of its salary ranges as a result of this survey. Because of the 8 percent salary range increase, the Office of the President asserts it did not realize any salary range reductions from implementing our recommendation.

If the Office of the President had not applied the full 8 percent increase to all positions, its new methodology for weighing private and public salaries may have resulted in salary savings. We performed an analysis on five administrative positions we reviewed as part of the audit and found that when we reduced the salary midpoints for the Office of the President positions by 8 percent and compared them to comparable state positions, the Office of the President's salary ranges were closer to the comparable state positions than they were when we conducted the audit.

However, with the 8 percent salary range increase, all five of these positions continue to make significantly more annually than their state employee counterparts. For example, the Office of the President will pay an executive assistant between $10,700 and $42,500 more than a state employee in an equivalent position. Similarly, although the State's accounting manager position has a higher salary minimum, the equivalent position at the Office of the President can ultimately make up to $70,200 more annually. For four of the five positions we reviewed, the difference between the Office of the President's new salary midpoint and the State's equivalent position was greater than the differences we found during the audit. Therefore, because of its choice to continue to pay administrative positions at levels much higher than comparable state positions, the Office of the President increased salary ranges and did not realize any savings that could be reallocated to campuses for the benefit of students.


1-Year Agency Response

The Office of the President has initiated efforts to implement this recommendation and will provide a status update on its progress at the next reporting milestone.

  • Estimated Completion Date: April 2019
  • Response Date: April 2018

California State Auditor's Assessment of 1-Year Status: Pending

The status of this recommendation is pending the Office of the President setting targets for any needed reductions to salary amounts and adjusting salaries accordingly.


6-Month Agency Response

Implementation of this recommendation will be dependent on actions taken in response to the April 2018 recommendations.

  • Estimated Completion Date: April 2019
  • Response Date: October 2017

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

The status of this recommendation is pending the Office of the President's development of a method for weighing comparable public and private sector pay data due April 2018.


60-Day Agency Response

Implementation of this recommendation is dependent on actions taken in response to the April 2018 recommendations.

A work group has been formed for the two projects related to staff salary ranges (OP and system). The work group members are compensation experts from OP and campuses/medical centers. Meetings occur weekly. An additional work group has been formed to address the project related to the review of leadership salary ranges (Market Reference Zones), systemwide. The work group members are compensation and Human Resource experts from OP and campuses/medical centers. Meetings occur twice monthly.

  • Estimated Completion Date: April 2019
  • Response Date: June 2017

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

The status of this recommendation is pending the Office of the President's development of a method for weighing comparable public and private sector pay data due April 2018.


All Recommendations in 2016-130

Agency responses received are posted verbatim.