Friday, October 7, 2016

Salary programs, inflation, and the rest of a unit's budget

In reconsidering our in class discussion yesterday, particularly when a student asked, "what about inflation?"- I was probably too flippant with my response, "forget about inflation."  So here I want to consider this a little more and explain how the process is more complex than I indicated yesterday.

First, on the salary program itself, which let's say is 3% just for the sake of discussion, some fraction of this, let's say 2% out of the 3% is meant to be applied across the board to hold faculty and staff harmless from the effects of inflation, while the other 1% of the 3% is meant to pay for a merit increase.  There is no guarantee that every employee will get at least a 2% increase.  So an employee who got no raise at all or just a 1% raise would take a real decline in salary, when adjusting for inflation.  That is possible.  (I don't believe a negative percentage raise is permitted.)   Likewise, how merit increases are allocated have no hard and fast rules.  Whether those are near uniformly distributed or are restricted to only one or two start performers depends on the unit and the inclinations of the supervisor who makes the salary recommendations.  I should add here that if an employee gets an outside offer the unit normally has a chance to respond, matching it or even bettering it some, as a way to retain the employee.  Since offers don't always come near the time of the salary program, the revenues for that have to come from somewhere, meaning from a higher level in the hierarchy, outside of the unit's budget.  Then when the salary program is applied, that person is taken out of the equation.

Next, on expenditures other than salary that might be subject to inflation, there are two points to consider.  First, the campus as a whole maintains a budget line for something called unavoidables.  This includes the health insurance premiums and the mandatory life insurance premiums that are part of each employee's benefits package.  It also includes things like the cost of utilities, which may vary from year to year based on the weather, and it includes other costs that are incurred because the campus self-insures on a variety of matters and sometimes must make payouts to settle losses.  The point is that in the budgeting many of the costs are covered at a higher level and are not in the unit's budget.  So, for example, the air conditioning in DKH is not paid by the Econ Department.  It is paid by the campus.

Then, the last part to note is that some of the unit's budget comes from sources other than off the top funding.  Gifts may be given directly to a unit.  Or consider grants.  Typically a faculty member will write a grant proposal but then run the grant through the home unit.  The grant includes an item for ICR (indirect cost recovery) to cover the costs of administering the grant.  The ICR is split between the unit and the campus.  And the unit may come up with new programs that generate additional revenues.  In some cases (particularly with gifts and ICR) the monies don't have to be spent in the fiscal year in which they are generated.  The monies can be carried forward.  So a unit likely has some cash reserve that can be used as a buffer to cover cost increases on non-personnel parts of the budget.

The above is the story as I understood things when I worked in the campus IT organization, which was more than 10 years ago.  The main difference now is that the campus has experienced a massive downsizing in its appropriation from the state of Illinois.  So everyone is scrambling to figure out what the new normal looks like.  We are still in the midst of the adjustment process.

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