Notice, February 1997

Supplemental Salary Program Likely to Be
Implemented for Berkeley Business Faculty

In the next few months, UC Berkeley is likely to implement a program under which selected members of its Haas School of Business faculty will receive supplemental salary increases that are intended to bring their salaries closer to "market" levels as determined by UCB.

Under the plan, all faculty salaries at the school would continue to be paid from state (or "19900") funds, but the Haas School (HSB) would effectively fund perhaps half of the supplemental increases by transferring money from differential student fees, private gifts, and executive education programs to the general campus. The campus is initially limiting the supplemental salary program to HSB faculty, but campus administrators say it could be broadened out to faculty from any unit that demonstrated the kind of salary lag that the business school has.

Planning for the program got underway last summer after another HSB supplemental salary program was terminated by the campus administration on grounds that it violated University policies. The earlier program, which ended last March, resulted in a University audit that was presented to the UC Regents in September. The existence of the program became known to the public in December when the Wall Street Journal ran a story on it.

The termination of the earlier program left HSB with what the school's dean, William Hasler, saw as a crippling salary lag in the school's associate and full professor ranks. Last summer, UCB Vice-Chancellor Carol Christ convened a task force on the issue whose conclusions were that, at these ranks, HSB faculty salaries lag market competition by about 15 percent more than general Berkeley campus salaries lag their market competition. The goal of the Haas supplemental salary program is not to raise the salaries of the selected Haas faculty to the level of their market comparators, but rather to have these faculty experience no greater a salary gap than is the case for the Berkeley faculty in general.

The so-called "comparison-eight" institutions that UC uses in setting its faculty salary levels were not used in calculating these relative salary levels. HSB Dean William Hasler says the campus "has validated the metric we've been using" to figure the deviation of HSB salaries from market. This is a salary list compiled by the American Assembly of Collegiate Schools of Business (AACSB). Meanwhile the difference between the HSB deviation from market and the general Berkeley deviation was calculated using the MIT Faculty Salary Survey and an annual survey conducted for the publication Academe.

Here is how the HSB supplemental salary program is expected to work. HSB will assign each of its faculty to a place in a quartile system; ranking from top to bottom, faculty will be placed in a first, second, third or fourth quartile, with separate groupings for associate and full professor ranks. The criteria for being placed in a given quartile will include general distinction as a faculty member, length of service in rank, and sub-discipline within business.

Following this, if a first-quartile associate professor, for example, comes up for review, the school will look at the difference between his or her salary and the range of salaries paid to associate professors in the first quartile of a national comparator group. Upon recommendation of the dean, some portion of the difference could then be made up, with the upward limit on the increase being about 15 percent (the difference between HSB's deviation from market and the general Berkeley deviation). Recommendations for special increases coming from HSB would then be reviewed by the Berkeley Senate's Budget (academic personnel) committee and senior campus administrators in the same way that any merit case is reviewed, with the exception that a recommendation for special increase would be regarded as an "outside" offer by the Budget committee. The HSB program is not expected to be applied to assistant professors for the immediate future, since their salaries are already at market levels.

HSB has not yet decided on what its internal process will be for placing faculty in quartiles, though Associate Dean for Academic Affairs Richard Meese said he would recommend to faculty that he decide on such placement after collecting data on faculty performance. The supplemental salary cases are generally expected to be considered in connection with normal merit reviews of Haas faculty, but as UCB Vice-Provost Nicholas Jewell notes, in the beginning there may be some "off-cycle" considerations.

The HSB supplemental salary program has been reviewed by the campus administration and by the UCB Budget committee, Jewell says, and now is being reviewed by the HSB faculty. Jewell believes it is possible that the first salary supplements will be granted under the program this year.

What might be the effect of such a program? A business faculty member moving this year from Professor Step III to IV would normally receive a salary increase of $5,700, or about 7.3 percent on top of the Step III base of $77,800. Under the program, that same professor could receive a salary increase of $11,670, assuming a 15-percent limit on increases.

Increases such as this stand to have an effect on the "ladder" within the business school. The increase granted above would place the Professor Step IV within $500 of the nominal salary of a Professor Step V. Such a comparison presumes, of course, that UC faculty salaries "normally" move up in strict accordance with increases in professorial step, when in fact it is increasingly common for faculty who are granted a single step increase to be given more than a single step increase in salary, thus moving them "off-scale." Nevertheless, the Haas proposal represents a program to systematically move faculty off-scale, which seems to be a first in the University.

Berkeley Vice-Chancellor Christ says that her task force thought about whether it should recommend construction of a new salary scale for business faculty, but decided instead to recommend the proposed Haas plan "because the business school doesn't want to lift everyone up," but instead prefers to direct supplemental salary increases to the most deserving faculty.

Beyond this, in the view of Berkeley Senate Chair and task force member John Quigley, there was a matter of getting something done quickly. "The question of changing the ladder is something that is under review and we ought to make progress on it," he says. "But given the exigencies of our business school, that was a course of action that would take too much time."

Under the program, the Berkeley campus will systematically be providing salary increases to HSB faculty that are in excess of the salary increase funding the campus will be receiving from the state. Thus, the question arises of how the campus will pay for these salary boosts. Part of the cost will be picked up by the campus, but the remainder will effectively come from HSB itself. The school will transfer to the general campus money it receives from three sources: differential business school student fees, private gifts, and executive education programs. The lion's share of these transferred funds will come from the student fees, according to Associate Dean Meese. The funds transferred will officially be a "contribution" in consideration of the excess salary money the school will be getting. Ultimately, the cost-splitting between campus and school for the program is likely "to come out at about 50/50," says Dean Hasler.

Under UC policy, professional schools may use the differential student fees they charge to fund faculty salaries, but the campus preferred not to use these funds for the new program, Jewell says, because it wished to preserve a uniformity in the direct funding of faculty salaries. Neither private gift nor executive education funds can be used for faculty salaries under UC policy.

The mechanism of funding for the program means that a small portion of Haas salaries will effectively be underwritten either by MBA student fees or by HSB income from outside sources - private gifts and Haas executive education programs. The salary program is being instituted at a time in which the University is giving consideration to a number of alternative means of funding faculty salaries. None of these ideas has yet advanced to the point of the HSB proposal, but some Academic Senate leaders have voiced reservations about any plan for funding faculty salaries that is predicated on a steady stream of funding from "entrepreneurial activities" such as the income from executive education programs. Income from such activities can go down as well as up, they note, while a faculty salary commitment is permanent. There have also been concerns expressed about faculty salaries being dependent on the continued popularity of degree offerings.

Vice-Provost Jewell responds that the question of adequate funding for salaries would become a practical problem only if the HSB program were expanded across many campus units -- something he does not foresee. "The Berkeley administration would like to see this expanded only to programs in which a salary lag [of the sort HSB has] can be demonstrated," he says.

It remains to be seen how many units will be able to demonstrate such a lag. The Berkeley economics department has already asked that an analysis of its salaries be done, Jewell notes. He adds, however, that the administration would consider instituting the program for any unit that had such a lag, whether or not the unit had the kind of internal funding sources that HSB has.

"In the Haas School, the expectation is that the contribution will be in dollars, but you can imagine other departments contributing in some other form," Jewell says. "They might say 'we're prepared not to have as much of a budget for visiting faculty," for example. He adds that any such proposal would have to be scrutinized carefully to make sure that, by contributing in this way, a department would not compromise any of its core functions.