Worsening Problems with UC Pay

The UC Regents' busy week includes hiring a new president and also voting on more routine matters, including one that has become routine fairly recently.  That is a proposal to increase employer and employee contributions to the pension again next year.    Each of these increases helps make the pension fund (UCRP) more solvent. Each also amounts to annual cuts to staff and faculty take-home pay.

In 1990, the Regents stopped pension contributions from both the University and from its faculty and staff, when the pension was overfunded, and did not restart them until April 2010, at least ten years after the pension began its decline towards the underfunded state it's in today.  The outcome for staff and faculty was summarized in an April 2013 letter from the University Committee on Faculty Welfare (UCFW) to Senate Chair Bob Powell (scroll down past the cover letter):

Between April 2010, the time that employee contributions were restarted, and July 2013, the value of take-home pay will have declined by a total of 10% due to inflation (6.5%) plus the restart of employee contributions (an additional 6.5%), off-set by only one 3% salary increase, in October 2011.

The employee contribution increased 1.5% in the year just started (bringing it to 6.5% of gross pay.  The proposal this Wednesday is to increase the employee contribution another 1.5% in 2014-15. In that year, each employee will send a total of 8% of their gross pay to the pension fund.

The Senate has had three general positions on this. The first is that contributions need to be ramped up quickly to fix UCRP's underfunding. To that end, Academic Council voted unanimously to support the proposed 2014-15 rates of 14% from the University and 8% from the employees (cover letter). 

The second position has been that the ratio of employee:employer contributions should never be more than 1:2.  That principle has now been temporarily set aside by the endorsement of the ratio of 8:14.

Finally, by a vote of 14-3-1, Council ratified UCFW's proposal that Senate approval be contingent on

the increase in employee contributions to 8% [being] accompanied by an across the board pay raise for faculty (and non represented staff) of at least 3%. A 3% increase would merely compensate for the two most recent 1.5% increases in employee contribution rates effective on July 1, 2013 and July 1, 2014; any increase greater than 3% would constitute a small step toward restoring competitive salaries

Unfortunately, such a pay increase has not been budgeted by the state, which foresees a 5% general fund increase (still well below 2007-08 levels) and no tuition increase (page 4).

I hate to depress my colleagues, but we may well be looking at another 1.5% cut in take-home pay next year, bringing the UC cuts to 8% since 2010, or say 12% when we count inflation and subtract the one-time 3% salary increase .

UC's 2013 Accountability report claims that faculty salaries are 85-89% of their comparators (page 70). The net pay gap  may be closer to negative 25%. 

UC commissions compensation studies, and in the 2000s they generally concluded that while UC faculty and staff salaries lagged, total compensation was as good or better, because pension and health benefits were so good. That was then. As employees pay more to support the pension, the pension becomes a smaller benefit. 

At a UCLA event last fall, former Senate chair and benefits guru Bob Anderson reported that the pension became "slightly uncompetitive" with comparison universities when employee contributions hit 5%.  At the 2013-14 rate of 6.5%, they are "definitely uncompetitive." So the solution to the uncompetitive salaries--the pension--has now become part of the problem.  (The same thing has happened to retiree health benefits, as UC contribution to current employee health costs was also cut from 89% to 70% of total cost over time.)

The state of UC's salary scales is even worse than that of actual salaries.  The reason is that 2/3rd of general campus faculty are off-scale.  The only way to keep a competitive individual salary is to be off scale, and if you didn't get hired with a large off-scale increment then in general you need to go on the job market, get an offer with a higher salary from a university that is good enough for UC to want to match, and get a salary match in return. 

This situation creates a "loyalty penalty" in which faculty who serve the institution more than they serve their own careers are in effect punished for service with lower salaries.  In addition, when faculty play the market, administrators need a bigger war chest to retain them.  They grow their reserves by keeping allocated lines unfilled and by failing to put any new salary money into fixing the scales.  One of the reasons fixing the scales overall has not been a priority is because many executive vice chancellors have opposed it, on the plausible grounds that the fix would come out of their campus funds and reduce their funds for faculty retention and related needs.

Prof. Anderson pointed out that when the University stopped contributing to the pension, it was engaging in hidden deficit spending. Employees were incurring $1.5 billion in annual service credit, a third of that tied to state funding. So at the 1:2 employee:employer ratio, UC artificially suppressed its state funding need by at least $333 million a year. 

The same can be said about salaries.  The university needs enthusiastically self-overworking loyalists to function at a high level.  The avoidance of a two-speed faculty has over decades increased both equity and efficiency, and in particular helped shrink gender-based pay gaps. The new practice of having negative to zero overall net pay increases establishes a two- or three-class structure within the faculty, with attendant operational and equity problems.  And it perversely allows the University to lowball its real state funding need in a way that insures correct state funding will never be there.

The salary scales need to be fixed, loyalist pay brought back into line with comparison schools, and faculty in this way encouraged to put more rather than less time developing the university overall.  The only way to fix scales (and the pension) is to get state funding back to normal levels.  But no one is making the case clearly enough that UC, without renewed investment, is still on the verge of being permanently downgraded as a university.

Salaries and scales are one of those issues where conventional wisdom is wrong, and where you need deep experience to understand why.  Pay gaps will be along the new president's major challenges, and I hope the issue will be presented correctly to her.