Report 2016-130 Recommendation 34 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 #34 To: University of California

To ensure that its staffing costs align with the needs of campuses and other stakeholders, by April 2020 the Office of the President should adjust its salary levels and ranges to meet its established targets.

Annual Follow-Up Agency Response From September 2023

The CSA recommended UCOP weight comparable public and private sector pay data when establishing salaries for policy-covered positions (#10), and narrow salary ranges (#24). The CSA assessed both recommendations fully implemented. UCOP's work was validated by independent compensation experts Sullivan Cotter and presented to the Regents.

The CSA did not recommend changing other elements of UC's compensation methodology, such as making market adjustments to salary ranges, but that does not change the fact that including public sector data and narrowing ranges did compress the overall compensation structure. In FY21-22, UCOP adjusted salary ranges by 2.5%. In FY22-23 and FY23-24 UCOP adjusted its salary ranges by 3.0% and 4.4% respectively to better compete in a volatile labor market. The result is an average increase of 2.98% per year over the past six years. Market adjustments are consistent with UC Regents Policy 7701 which specifies the need to effectively recruit and retain employees.

Completion Date: January 2021

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

Partially implemented for reasons stated previously.

Auditee did not address all aspects of the recommendation

Annual Follow-Up Agency Response From October 2022

The CSA did not recommend changing other elements of UC's compensation methodology, such as making market adjustments to salary ranges, but that does not change the fact that including public sector data and narrowing ranges did compress the overall compensation structure. UCOP decided not to adjust the Career Tracks salary ranges for the FY20-21 year. In FY21-22, UCOP adjusted salary ranges by 2.5%, and in FY22-23 by 3.0% to better compete in a volatile labor market. The result is an average increase of 2.25% per year over the past six years. Market adjustments are consistent with UC Regents Policy 7701 which specifies the need to effectively recruit and retain employees.

Completion Date: January 2020

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

We are rating this recommendation as partially implemented due to the concerns we expressed in recommendation 23. 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 that 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 discuss in recommendation 23, the gap between the Office of the President's salaries and state salaries widened since our 2017 audit for three of the five administrative positions we reviewed, because the Office of the President chose to apply an 8 percent market adjustment to all of its salary ranges. With the 8 percent salary range increase, all five of these positions continue to make significantly more annually than their state employee counterparts. Because of its choice to continue to pay administrative positions at levels much higher than comparable state positions, the Office of the President did not realize any savings that could be reallocated to campuses for the benefit of students.

Auditee did not address all aspects of the recommendation

Annual Follow-Up Agency Response From October 2021

The CSA did not recommend changing other elements of UC's compensation methodology, such as making market adjustments to salary ranges, but that does not change the fact that including public sector data and narrowing ranges did compress the overall compensation structure. UCOP decided not to adjust the Career Tracks salary ranges for the FY20-21 year which lowers the annual impact of the 8% adjustment in 2019 to only 2% per year over four years. For FY21-22, UCOP adjusted salary ranges by 2.5% to better compete in an unfolding labor market. The result is an average increase of 2.1% per year over the past five years. Market adjustments are consistent with UC Regents Policy 7701 which specifies the need to effectively recruit and retain employees.

Completion Date: April 2019

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

We are rating this recommendation as partially implemented due to the concerns we expressed in recommendation 23. 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 discuss in recommendation 23, since our 2017 audit the gap between the Office of the President's salaries and state salaries widened for three of the five administrative positions we reviewed because the Office of the President chose to apply an 8 percent market adjustment to all of its salary ranges. With the 8 percent salary range increase, all five of these positions continue to make significantly more annually than their state employee counterparts. Because of its choice to continue to pay administrative positions at levels much higher than comparable state positions, the Office of the President did not realize any savings that could be reallocated to campuses for the benefit of students.

Auditee did not address all aspects of the recommendation

Annual Follow-Up Agency Response From April 2020

The weighting of public-sector comparators lowered the underlying market data for Career Tracks salary range midpoints by 2%. Based on this analysis and narrowing the ranges, UCOP adjusted its salary levels and ranges to meet its established targets. As presented to the Regents in March 2019, existing employee salaries are not impacted by changing the midpoints unless it falls below or above the range. Because 91% of UCOP employees are currently paid below the 75th percentile of their range, the only short-term adjustments that occurred were to bring salaries up to the low end of the range per recommendation #24. Lowering midpoints by 2% overall can reduce the budget in the future if positions turn over or employees reach the range maximum sooner, but these do not produce short-term material impacts and the former isn't easily calculated given factors such as years of experience that go into salary setting decisions.

The CSA did not recommend changing other elements of UC's compensation methodology, such as making market adjustments to salary ranges, but that does not change the fact that including public sector data and narrowing ranges did compress the overall compensation structure. Market adjustments are consistent with UC Regents Policy 7701 which specifies the need to effectively recruit and retain employees. Recognizing that market adjustments are a concern to the CSA, UCOP decided not move the ranges for the FY20-21 year which lowers the annual impact of the of the 8% adjustment to only 2% per year over four years. Without the CSA's recommendations, the base on which the adjustment was made would have been higher.

Completion Date: April 2019

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

We are rating this recommendation as partially implemented due to the concerns we expressed in recommendation 23. Policy choices the Office of the President made negated any savings it would have realized from implementing our recommendation and thus we continue 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 discuss in recommendation 23, 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 because the Office of the President chose to apply an 8 percent market adjustment to all of its salary ranges. With the 8 percent salary range increase, all five of these positions continue to make significantly more annually than their state employee counterparts. Because of its choice to continue to pay administrative positions at levels much higher than comparable state positions, the Office of the President 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: April 2019

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

We are rating this recommendation as pending due to the concerns we expressed in recommendation 23 regarding the 8 percent salary range increase that the Office of the President applied which negated the impact of our recommendation. We will reevaluate any steps the Office of the President takes to resolve our concerns when assessing its April 2020 response to this recommendation.

Annual Follow-Up Agency Response From April 2019

As referenced under responses for CSA Recommendations #23 and #24, UCOP Salary Ranges were adjusted to meet approved targets, effective April 1, 2019 - see Link article: http://link.ucop.edu/2019/04/02/salary-ranges/?utm_source=UCOP+Employees&utm_campaign=7f3768ff1e-Link_071018_COPY_01&utm_medium=email&utm_term=0_6cd99fa4c2-7f3768ff1e-186180881

New salary ranges were also posted on the UCOP HR website: https://www.ucop.edu/local-human-resources//_files/compensation/ucop-salary-structure.pdf.

Effective April 1, 2019, salaries were increased for 51 UCOP employees, whose pay either fell below the minimum of the narrowed salary ranges or was compressed with other employees' pay that was adjusted to the minimum of the salary range.

Completion Date: April 2019

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

1-Year Agency Response

Implementation of this recommendation will be dependent on actions taken in response to the April 2019 recommendations.

Estimated Completion Date: April 2020
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's implementation of our salary restructuring recommendations due in April 2018 and April 2019.

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 2020
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 implementation of our salary restructuring recommendations due in April 2018 and April 2019.

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 four 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. The information gathered through the in depth analysis that is currently in progress will be used to determine the appropriate salary ranges and targets.

Estimated Completion Date: April 2020
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 implementation of our salary restructuring recommendations due in April 2018 and April 2019.

All Recommendations in 2016-130

Agency responses received are posted verbatim.