University of California Human Resources and Benefits

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[ July 21, 2006]

The University of California Board of Regents took action at its July 19-20 meeting to continue reforming UC compensation programs and improving its management and oversight, including through a restructuring of the Office of the President.

Meeting at UCSF's Mission Bay campus, the board endorsed recommendations contained in audits conducted by PricewaterhouseCoopers, the Bureau of State Audits and the UC auditor. The board previously had adopted the recommendations of another review conducted by the Task Force on UC Compensation, Accountability, and Transparency, and efforts are underway to complete the implementation of those recommendations.

"We are making measurable progress in overhauling our policies and practices so we never repeat the problems that we've all become aware of recently," said regent Judith L. Hopkinson, chair of the board's Special Committee on Compensation.

The regents also reviewed numerous individual compensation cases that have been raised in previous audits and acted to resolve outstanding issues in those cases. In May, the regents established a set of guidelines to deal with these cases. Since the vast majority of the issues concern lack of appropriate compliance with internal approval and disclosure policies and not overcompensation, the bulk of the corrective actions taken by the regents at the July meeting involve retroactive approvals and, where necessary, adjustments.

For example, in some cases compensation was not correctly counted toward an individual's taxable income, and revised W-2 forms are being issued. In other cases, past arrangements were approved, but not continued prospectively because the person either has left the university or because the regents deemed continuing the arrangement inappropriate. Complete details about the individual cases and the regents' corrective actions can be found at:

http://www.universityofcalifornia.edu/news/2006/salaries0706.html

In addition, the board announced a restructuring of the Office of the President leadership aimed at strengthening oversight of business and finance functions.

Under the new structure, four executive vice presidents will report to President Robert C. Dynes. They are the provost and executive vice president for academic and health affairs, currently held by Provost Rory Hume; executive vice president for university affairs, currently held by Bruce Darling; executive vice president for business operations, a new position to be filled; and executive vice president and chief financial officer, another position yet to be filled. The latter two positions replace the previous position of senior vice president for business and finance.

"The previous structure included one job for finance and business, which is a monumental area of responsibility," Hopkinson said. "We want to attract incredibly high-level people to focus on these issues, and we want to communicate the importance of these positions."

In addition, the regents approved a job description for a new vice president for compliance and audit, a position that will report directly to the regents.

"No longer will the regents rely on voluntary compliance," said Board of Regents chairman Gerald L. Parsky. "This position will give the regents new assurance that the university is fully complying with its policies, providing an unprecedented level of accountability to the public."

Among other employment-related issues the regents discussed:

Pension contributions: The UC administration told the regents that a planned July 2007 restart of employer and employee contributions to the UC Retirement Plan (UCRP) is intended to start small. For employee contributions, UC's intention in the first year of restarted contributions is to simply redirect to UCRP the current employee contributions to the Defined Contribution Plan, meaning no reduction in take-home pay.

"Our goal is to try to minimize the financial impact of restarting contributions on employees as much as possible," said Judy Boyette, associate vice president for human resources and benefits. "The more we let UCRP become under-funded, the bigger the financial hole UC and employees will have to pay their way out of. Gradually phasing in contributions with lower initial contributions lessens the impact on everyone."

UC employees have enjoyed a "holiday" from making contributions to the retirement plan since 1991. However, new actuarial projections demonstrate the need for employer and employee contributions to be re-started if UCRP is to remain sufficiently funded and able to pay out future benefits that have been promised to UC employees.

More information about UCRP is available at:

http://www.universityofcalifornia.edu/news/ucrpfuture

A report from the UC Academic Senate supporting the need to reinstate contributions is available at:

http://www.universityofcalifornia.edu/senate/reports/ucrp.0506.pdf

Housing loan programs: The Regents also heard a report on UC's housing loan programs, which are a tool in recruiting and retaining faculty and senior managers in the high-cost communities surrounding most of UC's campuses.

The principal program, called the Mortgage Origination Program, uses funds from UC's Short-Term Investment Pool (STIP) to provide below-market-rate home loans to eligible faculty and senior managers. Since the loan recipients repay at a rate exceeding the pool's rate of return, California gets a powerful tool to bring some of the world's best faculty here, and it costs taxpayers nothing.

Equity increases: The regents approved implementation of 2005-06 equity increases for about 70 senior managers. The increases, originally to be given last fall when the general employee population received pay increases, have been suspended for the last nine months pending the regents' review of senior management compensation practices. With new controls now in place, regents allowed the equity increases to be given to those employees whose current compensation most significantly trails the market.

As background, a total 4 percent funding pool was allocated in 2005-06 for UC employee merit and equity increases. For eligible non-Senior Management Group employees, 3.5 percent of the funding pool was used for merit increases and 0.5 percent for equity increases. For eligible senior managers, 2.5 percent of the pool was used for merit increases, with the remaining 1.5 percent (a total of $770,000) held back for equity increases to address equity gaps relative to the market or internal comparators. The regents' action at the July meeting distributed this remaining 1.5 percent. Details about the equity increases are available at:

http://www.universityofcalifornia.edu/news/2006/2005-06equity.xls

Individual compensation items: The regents also approved compensation for new employees coming to UC, and increases for existing employees associated with promotions, new appointments, retentions and stipends. The rationale for each proposed action is described in the public meeting agenda, and complete details about the compensation for each individual are available at:

http://www.universityofcalifornia.edu/news/2006/salaries0706.html