Follow-up report to the task force on UC compensation, accountability, and transparency
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  2009-08-13


I.             Introduction and Purpose

After adopting the recommendations proposed by the Task Force on UC Compensation, Accountability, and Transparency in 2006, the Regents agreed to reconvene in three years' time "...a similarly constituted, independent body to review and report back on the University's progress in these areas. 

There are three main areas of focus for the Task Force today:

  •         Review and validate accomplishments
  •         Review and comment on pending actions
  •         Provide guidance on future actions

The following report and materials are provided to assist in the Task Force review:

  •        A summary report providing the specific actions taken by UC to address the Task Force recommendations
  •        A chart listing the specific Task Force recommendation, the resulting actions and the details of the status regarding implementation of remedies
  •        Sample documents to provide additional context

II.          Background

The Task Force on UC Compensation, Accountability, and Transparency was created by the then Chairman of the Board of Regents, Gerry Parsky, early in 2006 to "...conduct an independent review of the University's polices and practices on compensation for faculty and senior managers and on the release of public information regarding compensation and related matters, and to recommend improvements." 

The review by the Task Force identified twenty-two findings and recommendations categorized under four primary areas:

  •       Disclosure and Transparency
  •       Governance and Accountability
  •       Specific Policies and Practices
  •       Competitive Compensation 

 

The following information will address those actions that have been implemented and those underway but not fully implemented, organized within the four primary areas noted above.

III.       Report on Progress

1.     Actions That Have Been Implemented - Disclosure and Transparency

The following describes the accomplishments and ongoing efforts to implement the Task Force recommendations.  A graphic summary is in the accompanying chart. 

Over the last three years, the University has implemented reforms consistent with the Task Force recommendations including:

  •         In 2006, the Regents approved the definition of ‘total compensation', applying this definition to policies, and incorporating it into monitoring and reporting standards.
  •         In 2006, the Regents redefined and clarified protocol and processes to ensure transparency in disclosing senior leadership compensation actions.  Actions are now presented to the Regents in advance of meetings and posted publicly after approval.
  •        In 2006, the Regents established a practice of consistently and fully disclosing itemized details of compensation proposals to the Regents for approval and, once approved, are posted publicly.  A sample Regents item and disclosure is provided as Attachments A & B.
  •         In 2006, the Regents approved a new format and content for the Annual Report on Executive Compensation.  This report is presented to Regents in March of each year and distributed to legislators and the public.  This report details the total compensation for staff, systemwide, whose annual cash compensation exceeds the Indexed Compensation Level ($214,000 in 2009).  Attachment C.
  •        In November 2006, UC produced its first annual public reporting of salary and gross pay for all UC employees systemwide.  Attachment D
  •         In 2007, the report on Compensated Outside Professional Activities for all Senior Management Group staff was expanded to include more details regarding the type and amount of compensation received, as well as time spent on the activity and the number of vacation hours taken to perform the service.  Attachment E  
  •       In 2006, UC implemented a data warehouse to collect compensation-related information, referred to as the Senior Leadership Information System (SLIS).  This database supports reporting and monitoring efforts used in the production of the bi-monthly transaction monitoring reports, the annual reports on compensated outside activity and the Annual Report on Executive Compensation.  Attachments F, E, & C
  •        In 2006, the Office of the President established and filled a position to oversee Public Information Practices, coordinating all Public Records Act requests for OP.  Director of Public Information and Records, Stella Ngai, reports to the Executive Vice President for Business Operations.
  •        In 2006, Office of the President launched a website to provide the public with details on compensation information.  Attachment G

Since 2007, the Office of the President has worked closely with the Senior Vice President for Compliance and Audit to establish ongoing audits to validate accuracy and completeness of campus and OP reporting, monitoring and disclosure of information.

2.     Actions That Have Been Implemented - Governance and Accountability

  •        In 2006, the Regents established a Committee on Compensation and created oversight standards for the review and approval of compensation, policies and other HR-related activities.
  •        In 2006 the Regents established clear delineations of authority for actions requiring approval by the Regents, the President, or the Chancellors, incorporating these standards into policy and process and establishing reporting and monitoring standards.
  •          The Regents exercise approval authority over approximately 350 staff members including:
                 all Senior Management Group (SMG) members systemwide,
                 any non-SMG direct reports to the President, and
                 any non-SMG direct reports to the Chancellors whose total compensation is greater than $275,000 and                      whose actions would be exceptions to policy.

 

  •           Currently, any actions taken by the President, Chancellors or Lab Director for staff whose total annual compensation exceeds $214,000 are reported to the Regents at each meeting:
  • Bi-Monthly Transaction Monitoring report;
  • Report on Actions Taken Under Delegation of Authority for Recruiting and Negotiation Parameters for Certain Athletic Positions and Coaches, Systemwide.
  • Exceptions to policy are now clearly defined. In addition, the revised policies include a section on compliance and responsible officers, and the process for dealing with non-compliance.  
  • The Regents' items provide a detailed description of each action and clearly designate each action as an exception to policy or within policy.  Policy exceptions are also noted in public disclosures of actions, and in the monitoring and annual reports on compensation.
  • In 2006, Policy Review Committees were established to initiate a review process ultimately resulting in sixteen policies being identified for revision, the details of which are covered in the next section. 
  • The OP Compliance and Audit office established an ethics training program, mandated for all employees, and integrated it into the ongoing compliance and conflict of interest training sessions, as well as other training modules.  Over the last two years approximately 85% of all employees systemwide completed their annual training.  It is expected that compliance will increase as the training is expanded.

3.     Actions that Have Been Implemented - Specific Policies and Practices

Sixteen policies were targeted for revision and ten have been completely revised and implemented.  The revised policies now delineate clear definitions of approval authority, accountability, exceptions to policy and compliance. 

The following policies have been revised and implemented:

  •        SMG Salary and Appointment
  •        SMG Hiring Bonus
  •        University-provided housing
  •        SMG Auto Allowance
  •        SMG Moving Reimbursement
  •        SMG relocation allowance
  •        Separation Agreements (not addressed by the Task Force)
  •        Rehired Retirees (not addressed by the Task Force)
  •        Interim policy on Compensated Outside Professional Activities
  •        SMG Performance Management

 

4.     Actions That Have Been Implemented - Competitive Compensation

In 2005, the first Total Remuneration Study was presented to the Regents.  This report provided details of the UC competitive position for cash compensation, benefits and total remuneration for ladder rank faculty and staff.  An updated Total Remuneration Study was recently completed using data from 2007, benchmarking against the 26 public and private institutions designated by the California Post-Secondary Education Commission (CPEC).  The report is under final review within the Office of the President and will be presented to the Regents in September or November of this year.  This study shows that overall Ladder Rank Faculty (LRF) are approximately 20% behind market average salaries at comparable private institutions and approximately 3% ahead of the public institutions.  When the public and private data is combined, Full Professors lag this aggregated market average by 10%, Associate Professors lag by 12% and Assistant Professors are behind by 7%.  When benefits are brought into the equation, and assuming that employee contributions to UCRP commence in April 2010, total remuneration for overall LRF is 14% behind the privates and 7% above the market average for public institutions.  Attachment J

In FY 2007-08, the Regents adopted a four year faculty salary plan designed to address market disparity.  The first year of the program was funded; however no further funding was available for year two or three (FY 2008-09/FY 2009-10) due to State budget reductions sustained by the University.  In FY 2008-09 and FY 2009-10, faculty merit increases were funded, but staff merits were cancelled.  During this period, salary increases for represented staff were honored consistent with the terms of collective bargaining agreements.

 

IV.        Ongoing Efforts

1.     Ongoing Efforts - Disclosure and Transparency - Human Resource Information System (HRIS)

In 2006 the Senior Leadership Information System (SLIS) was launched to provide a mechanism for collecting and reporting compensation-related data on the executive group.  Although limited in its functionality, it provided a means of consistently characterizing data for reporting and monitoring activity, as well as responding to public information requests.  It models capabilities that will be incorporated into a new HRIS.

Also in 2006, UC commissioned Deloitte Consulting to conduct a high-level assessment of all HR information technologies across the UC system.  The study also identified challenges associated with efforts to integrate the various HR approaches that currently exist.  While resources were not available to implement a comprehensive HRIS solution in the past, the Payroll Personnel System (PPS) project currently underway is designed to improve access to more robust and higher quality systemwide data, with HRIS functionality now being incorporated in the overall project.   

A Workgroup, comprised of campus and OP leadership, was recently formed to review options to establish a new PPS with the intention of creating a ‘single instance' system to pay all University and affiliate employees. Currently there are eleven different payroll systems across the enterprise, and the cost associated with maintaining separate systems requires that this effort be given priority.  The current payroll efforts create significant challenges with respect to maintenance, data consistency and resource allocation.  This effort, which launches on September 1, will begin to reconcile all eleven instances into a common, core functionality, and then review the various technology solutions to support the payroll effort. 

In addition, the Workgroup will explore the feasibility of expanding this project to include an HR IT solution as a front end and ‘system of record'.  While payroll may have been the impetus to this undertaking, there is growing acknowledgement that the HRIS overlay represents the largest value added to the project.

The Workgroup has posted a Request for Information (RFI) with various consulting firms and service providers as a means of pre-qualifying the respondents to perform a gap analysis across the UC enterprise.  The Workgroup has also produced a ‘white paper' that provides details on the current situation, identifies key issues, and establishes guiding principles for choosing a process reconciliation path and technology solution. Ultimately, implementation of the new PPS will provide much better controls, such as data entry edits, to improve the consistency of data, and will better support systemwide compliance and monitoring activity, as well as increase efficiencies and reduce operational costs.

2.     Ongoing Efforts - Disclosure and Transparency - Data Consistency

As the PPS project progresses, OP continues working with campuses to standardize payroll codes to achieve consistency in tracking and reporting.  The following represents some of the accomplishments to date:

 

  • Certain vague and general-purpose payroll codes such as "by agreement" have been consolidated and restricted, with additional, more detailed documentation providing clearer definition.
  • Ongoing training is provided to the payroll managers at the various locations, helping to ensure consistent application and interpretation of codes and procedures. 
  • Campuses can no longer establish their own new payroll codes but must request Payroll Coordination at UCOP so that consistency and linkage to CPS (Corporate Personnel System) can be assured.

 

3.     Ongoing Efforts - Governance and Accountability - Pending Policy Revisions

Of the sixteen policies that were targeted for revision, the following six policies are currently being revised to be implemented by the end of fiscal year 2009-10:

 

  • Certain sections of the Regents Standing Orders and By Laws are being amended to provide further clarification and align with other policies.  The Office of General Counsel has submitted a revised draft for review and consultation.  The final amended policies will be submitted for approval by end of calendar year.
  • The Outside Professional Activities policy will be finalized and presented to Regents in November. This revised policy will replace the interim policy currently in effect since 2006.   
  • The policy to migrate Deans from the SMG policies to Academic Personnel policies will be presented to Regents in September.  Attachment K (This policy was not identified in earlier Task Force documents.)
  • The Transitional Leave policy (Administrative Leave in Lieu of Sabbatical) is being finalized with several approaches identified in consultation with the Academic Senate.  The final policy is expected to be submitted to Regents in November.
  • The Absence from Work policy is a staff policy that was not identified in earlier Task Force documents, but included to support other policies being revised.  This policy has been drafted and is being finalized for approval by the end of the calendar year.
  • The policy governing SMG Cash Recognition and Incentive Awards is also under review with OP leadership, and will be submitted for approval by June 2010

 

4.              Ongoing Efforts - Competitive Compensation - Challenges to Progress

The President and the Regents have consistently recognized the importance of ensuring that the University be in a position to provide competitive compensation to faculty and staff to ensure that it can attract and retain the best talent possible. Historically the cash compensation for existing faculty and staff has lagged the market in varying degrees, in one recent case by as much as 37% for Chancellors. 

Although the University's benefits have tended to soften the impact of this disparity, the impending restart of employee contributions into the UC Retirement Plan (UCRP) scheduled for April 2010 and the trend of shifting increasing costs of some benefits to employees has resulted in a reduction in the value of these benefits.  Additional details of the University's Total Remuneration position to market is contained in Attachment J.

In FY 2007-08, the Regents adopted a four year faculty salary plan designed to address market disparity.  The first year of the program was funded; however no further funding was provided for year two or three (FY 2008-09/FY 2009-10) due to State budget reductions sustained by the University.  In FY 2008-09 and FY 2009-10, faculty merits increases did continue to be funded even though staff merits were cancelled. 

The magnitude of the State funding reductions to the University for FY 2008-09 and FY 2009-10 totaling over $800 million (a 20% reduction over FY 2007-08 levels) caused the Regents, upon request of the President, to declare a fiscal emergency and impose furloughs/salary reductions on faculty and staff for the period of September 1, 2009 through August 31, 2010.

Clearly these actions caused by the dramatic State funding reductions confronting the University will challenge the University's ability to remain competitive in retaining and recruiting faculty and staff.   The next few years will test the University's ability to address fiscal challenges in new and creative ways, to free up resources to reshape the University's future and ensure that appropriate market-based total remuneration is a component of a sustainable solution to maintaining the University's reputation as a top-ranked public research and educational institution.

We believe further examination of our current remuneration strategy will reveal gaps in cash compensation for faculty and staff that will need to be addressed for UC to deliver competitive remuneration.

Several initiatives are scheduled to get fully underway this Fall to construct an overall strategy of Talent Management:  Areas include:

  • Market Based Pay
  • Health and Welfare Benefits
  • Retirement Programs

We expect to have defined initiatives that will be ready to launch by FY 2010.

V.           Conclusion

Over the last three years, UC has made significant progress in addressing the recommendations of Regent Parsky's Task Force.  Many of the issues that made it necessary to convene such a committee have been addressed.  However, there are some areas where continued discipline and progress are critical. 

Moving forward, efforts must be focused on more of the strategic challenges facing the University. The current financial crisis has dictated that some of the strategic efforts with regard to pay and remuneration be put on hold.  With the appropriate controls, checks and balances in place, we believe we can continue to be successful in continuing to rebuild confidence in UC's ability to manage the talent and systems to build upon our status in the educational community.  

View the compliance and internal audit addendum to the follow-up report.