Etchemendy imposes salary freeze in effort to minimize layoffs

BY BARBARA PALMER

Most faculty and staff will not get performance-based raises in September, Provost John Etchemendy said in a letter delivered last week to 10,900 faculty and staff. The salary freeze for the 2003-04 fiscal year is expected to save the university about $7 million to $8 million and will allow the university to avoid about 125 layoffs, the provost said.

A weak stock market that has reduced the income generated by investing the university's endowment, rising health care costs, the increased need for student financial aid and added costs due to new construction all have contributed to next year's $25 million budget shortfall, the provost said. While expenses are expected to grow by 6 percent next year, income is expected to increase by only 2 percent. "These are not insurmountable problems and pose no risk to the fundamental strength of our university," Etchemendy wrote.

"Still, I need to emphasize that it will be impossible to balance the budget while completely avoiding staff reductions, and some of these reductions will require layoffs," he said last Friday. Most of the university's costs are for employee compensation and the needed budget cuts cannot be achieved just by trimming non-salary expenses, he said. "I am hopeful that the layoffs that prove to be necessary will number in the tens, not the hundreds of employees."

The university is taking many other steps to cut costs and increase revenues, Etchemendy said. Those measures, combined with the salary freeze, are expected to save 250 to 300 jobs, he said. "I translate that into 250 to 300 families who will not have suffer the financial shock of losing an income, and many more continuing employees who will not have to shoulder the work left behind by those let go."

The University Budget Group, which currently is reviewing proposed budget cuts submitted by schools and departments, is making decisions based on the question, "What causes the least amount of pain?" Etchemendy said. "We're going down the list, figuring out what things we can preserve and protect."

Without the salary freeze, schools and departments would face an average 10 percent budget reduction, he said. Most now are looking at cuts that "are more than 5 percent, but less than 10 percent." The cuts will not be made equally across departments, he said.

The one-year salary freeze does not apply to the approximately 1,100 staff who are members of a bargaining unit. The university's three-year contract with United Stanford Workers, who are members of the Service Employees International Union (SEIU) Local 715, will expire Aug. 31.

Etchemendy, President John Hennessy and other university officers have volunteered to take a 5 percent cut in pay for 2003-04, the letter said.

Some salary adjustments, bonuses will be made

Next year's budget also will include money for what the provost called "special exceptions" to the salary freeze. Funds will be available to make "significant and necessary" market adjustments to salaries, said Linda Herkenhoff, Human Resources' director of compensation, training and organizational development. "Some bonuses based strictly on outstanding performance will still be allowed," she said. Guidelines and coaching for performance evaluation is available to supervisors from human resource officers, she said.

John Cammidge, who is leaving the position of executive director of Human Resources today, called the salary freeze "necessary and inevitable" in the short term, and said he personally applauds the provost's courage in deciding to freeze salaries.

However, "the devil is in the details," he said. Administrators are still working out how selected bonuses will be awarded, he said. The program will need to be flexible, "but not to the degree that it creates inconsistent treatment."

Supervisors still should conduct formal performance evaluations, according to information included in a list of frequently asked questions released by the provost's office. (The FAQ is available online at www.stanford.edu/dept/ucomm/provost/qa.html.)

It was important to both the provost and the president that staff and faculty salaries be considered equally, Etchemendy said. In the past, budget cuts have disproportionately affected staff, he said. "Neither John nor I were willing to do that. It would mean balancing the budget on the backs of people who are generally the lowest paid."

Historically, staff salaries have been less competitive than faculty salaries, he said. The university has worked hard in the recent past to make staff salaries, as well as faculty salaries, very competitive, he said. "The freeze will make us less competitive, but it will be equally less competitive" for faculty and staff, he added.

Current salary data overwhelmingly indicates that salary increases across the county will be at historically low levels for most organizations, both in industry and academia, Herkenhoff said. Stanford's salaries currently are very competitive with the overall market, she said. "This should continue to be true even with this salary freeze." Salary and compensation programs will be reviewed for 2004-05, based on overall economic conditions, Herkenhoff said.

Faculty and staff response to the decision to freeze most salaries across the board rather than to make more targeted cuts has been mostly positive, the provost said. In last week's letter, Etchemendy invited employees to contact him with their comments. By Friday morning, the provost had received 20 e-mail messages agreeing that the freeze was the right thing to do and three negative messages. "It certainly reminds me, yet again, of what a wonderful and supportive community we have here at Stanford," he said.

Employee benefits package still undetermined

The administration has yet to determine employee benefits, including health benefits, for the coming year, the provost said. In that area, "we're getting killed, largely because of the cost of medical benefits," he said.

The cost to the university of providing health care costs, which rose by 22.5 percent last year, is projected to rise again this year. The estimated cost of benefits as a percentage of salary changes from week to week, Etchemendy said, and has ranged from 26 to 29 percent. The fluctuation is largely due to uncertainty of future health insurance costs, he said. "Each point change in the benefits rate translates into a $2.7 million swing."