Dear Colleagues,

I am writing to all Stanford employees to announce a difficult budgetary decision that I have made, and to explain the reasons for that decision. I have decided that we will not offer performance-based raises for either faculty or staff for the 2003-04 fiscal year. What this means is that most employees will receive no raise this coming September.

I'm sure you are aware that the university is facing a budget shortfall. Simply stated, we must reduce spending in the new fiscal year because, while we project a 6 percent growth in expenses, we anticipate a less than 2 percent increase in income. The majority of any university's expenditures consists of employee salaries, and these can be lowered only by reducing either the number of employees or what they are paid. By forgoing faculty and staff raises, we will avert many layoffs that would otherwise be necessary. It will not be possible to completely eliminate the need for staff reductions: Some units, in order to meet allocation decreases, may still have to lay off staff members. But forgoing raises will minimize the need for such cuts.

There will be a few special exceptions to our decision to offer no salary increases. In particular, a small pool of money will be available for market and equity adjustments for both faculty and staff.

Forgoing raises is one step we are taking to reduce expenditures. As you know, budget allocations to departments were reduced in 2002-03. We have also asked departments to detail how they would cope with additional budget reductions ranging from 5 to 10 percent next year. A university-wide hiring freeze was implemented in October, and the timeline for major new facility projects has been delayed to reduce annual capital expenditures. Finally, the president and I and many other officers of the University have volunteered to take a 5 percent salary reduction for the coming year.

We face two interrelated stresses. The first is a reduction in income due primarily to a weak stock market. The other stems from increased costs due to a volatile health care environment, rising financial need among our students, and increased debt service and utility costs because of new construction. These are not insurmountable problems, and they pose no risk to the fundamental strength of our university. But it will take effort and innovation to balance our budget in the next fiscal year while continuing to support the top-quality education and research for which Stanford is known. The coming year or two will be challenging, but not damaging.

Some will argue that budget cuts should be more targeted, and that selective layoffs would allow us to better protect areas of strength. While we will be making some targeted cuts, President Hennessy and I believe that forgoing raises better reflects the choice most faculty and staff members would make. In fact, this has been borne out in my conversations over the past several months with faculty and staff. People who work here support one another and commit their time and energy to the university in ways that would make extensive job losses both difficult and harmful to the institution. Many of you are already working harder than ever before, and since a university's "business" does not slow down in times of tight budgets, each layoff represents additional work that must be shouldered by the faculty and staff who remain.

I am very proud of the ground we gained in the past several years in ensuring that our salaries are competitive in appropriate markets. That's one reason this is such a difficult decision to make. The other is that President Hennessy and I know how hard faculty and staff at Stanford work. We wish we could do more in the coming year to reflect our appreciation.

If you have questions about this decision, please feel free to email your concerns to me at etch@stanford.edu.

Sincerely,

John Etchemendy

Provost