Report 2016-130 Recommendation 10 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 #10 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 develop a method for weighing comparable public and private sector pay data when establishing salaries for all positions.

1-Year Agency Response

On March 15, 2018, the Regents adopted a methodology, as recommended by the Regents' Working Group on Executive Compensation, for weighing public and private sector data to create the new Market Reference Zones for Senior Management Group (SMG) members as displayed in the documents found at the link below. The Regents also adopted a methodology to reflect our competitive labor market, and include data from the State and CSU for operational staff and academic administrative positions at UC. As a result, approximately 85% of UC administrative SMG positions and 50% of academic SMG positions were matched to State or CSU positions.

The same methodology for evaluating and weighing public and private sector data has been adopted for non-SMG staff compensation (Career Tracks), including establishing a minimum weighting of 12.5% for State data, and matching UC positions to CSU positions. This methodology will govern data collection and analyses to amend the Career Tracks salary ranges for all non-represented staff, including those at UCOP.

The link to the Regents item below provides details on the new methodology and revised MRZs.

http://regents.universityofcalifornia.edu/regmeet/mar18/g2.pdf

The link below provides the Regents' approval of the item:

http://regents.universityofcalifornia.edu/aar/marg.pdf

A more detailed document on the Overview of Methodology for Staff Jobs excluding SMG and Represented Staff is being submitted to the CSA with this one-year update.

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

According to documentation provided by the Office of the President, effective April 2018 its compensation unit will adopt a methodology to weigh public and private sector data that will include comparable positions from various state agencies and CSU. Based on the methodology, when the Office of the President identifies a comparable position, state salaries will receive a minimum weight of at least 12.5 percent and CSU salaries will receive a variable weight. According to the March Regents' presentation, the Office of the President matched 70 percent of all operational/administrative senior management positions to state positions. Additionally, the Office of the President's independent consultant reported in January 2017 that it had matched 40 percent of all of the university's positions with marketplace matches to state positions. The Office of the President has implemented this methodology not only for its own staff, but all university employees. To gain some assurance that the Office of the President fully implemented this recommendation, we reviewed the underlying salary data for five senior management positions. We found that the Office of the President identified a CSU and a state position match for four of the five positions we reviewed. The variable weights for the CSU positions ranged from .8 percent to 1.4 percent.

Although state positions were given a higher weight than they had been given when we conducted our audit, which we have determined implements our recommendation, we noted that the Office of the President 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.

6-Month Agency Response

Additional surveys are being reviewed to assess their underlying data management methodology, data viability, and survey participants.

The work group is reviewing practices at other public and private AAU institutions to determine how each define their competitive labor markets; the methodologies they use for including public, private and other data; and, the surveys they use for analyzing markets, among other considerations.

Systemwide data is being reviewed to identify the organizations that comprises UC's recruiting and retention activity.

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 development of a method for weighing comparable public and private sector pay data. As of November 13, 2017, the Office of the President has not yet established survey sources, data sources, survey protocols, and survey methodologies. Moreover, it has made no changes to its current process for establishing salaries for executive staff. It claims that it will identify these items by the April due date.

However, we are concerned that the Office of the President does not intend to take genuine steps to implement this recommendation because it continues to contend that university employees are not comparable to state employees. Specifically, an Office of the President document analyzing its labor market concludes, "State positions are not comparable to UC positions, the State is not a competitor with the University, nor are their compensation practices and programs aligned with market practices..." It goes on to state, "CSU, often cited by CSA as a comparator to UC, is not comparable to UC." As we describe in our audit report, in the Budget Act of 2016, the Legislature required the regents to consider compensation for comparable state positions when evaluating the salaries of executives. The Legislature reissued this requirement in the Budget Act of 2017. In our report, we also acknowledge that while the Office of the President's assertion that the higher education environment necessitates higher pay for its staff for certain positions, this argument has less merit for administrative staff who perform similar duties no matter where they work.

The Legislature required the Office of the President to demonstrate a good faith effort to implement all of our recommendations; however, we do not believe that the Office of the President's response to this recommendation meets that requirement. The conclusions of the analysis above is in conflict with these directives and disregards our audit findings that the Office of the President—even when factoring in a cost-of-living adjustment—pays its staff significantly more than public employees as demonstrated in Figure 13 and Table 8 of our report. Furthermore, the Office of the President did not share adequate details with the regents Governance and Compensation committee regarding the work it has performed and its preliminary conclusions. When we shared this recommendation with the chief operating officer, she stated that this analysis was a preliminary look at the marketplace and that the regents and the president still need to weigh in on these conclusions. She also stated that the Office of the President is not necessarily going to align its salaries with the market and that it is taking this analysis very seriously. However, we recommend that the regents and their independent consultant invest additional efforts into holding the Office of the President accountable for implementing this recommendation.

60-Day Agency Response

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. A project plan has been finalized. A call with CalHR Compensation is scheduled for information collection regarding the State's approach to market pricing/data management processes and salary ranges. Possible additional survey sources focusing on public employers have been identified for the staff positions and the survey protocols and methodologies are being reviewed and data is being tested to determine integrity, adequate number of benchmark matches, etc. Once data sources are selected, a method for weighing comparable public/private pay data can be established.

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. A project plan has been finalized. Additional survey sources or alternate methods of data collection are being identified/reviewed that would support proper benchmark matching and data collection. A call with CalHR is scheduled for information collection regarding the State's approach to market pricing/data management processes and salary ranges. An advisory group comprised of Chief Human Resource Officers from campuses/medical centers has been created to review and provide input throughout the process. Once data sources are selected, a method for weighing comparable public/private pay data can be established.

Revised guidelines have been developed for the semi-annual equity/promotion process. At this time the semi-annual equity/promotion process scheduled for July 2017 has been suspended to continue to look at ranges and the weighting of market data.

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. Because the Office of the President's response implies it has identified additional survey sources, data sources, survey protocols, and survey methodologies, we requested the Office of the President provide additional documentation to support these statements for its 6-month response.

All Recommendations in 2016-130

Agency responses received are posted verbatim.