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Restore confidence in UC pay practices

BY WERNER Z. HIRSCH AND DANIEL J.B. MITCHELL

All organizations have to determine pay levels for professionals and high-level executives. In recent years, controversies have erupted over high pay of CEOs and other executives in private corporations. Similar controversies have now erupted in nonprofit and public institutions, such as the Getty Trust and the University of California. In the case of universities, questions have been raised not only about executive pay but also about faculty salaries.

When such issues arise, the standard practice is to defend the controversial pay levels as simply the product of the “market.” Market forces are certainly present in all hiring and retention decisions, but so are judgments about the quality of the individual. Such decisions often result from a negotiation between the organization and the individual concerned. And, of course, as in all human systems, abuses are possible.

Recent news accounts concerning pay practices at the University of California have produced concerns in the State Legislature about how faculty and administrative salaries are being determined. Some have argued that the appropriate response to these concerns is “transparency.” Indeed, transparency of a sort is already in place: the San Francisco Chronicle now maintains a Web site containing the names and pay levels of all higher-paid UC employees. But that kind of transparency raises more questions than answers.

In the case of faculty, the UC system as a whole has developed an elaborate process of review, including peer review, surveys by students and classroom visits. In recent years, because of the California budget crisis, official faculty pay scales have been frozen. To deal realistically with market conditions in academia, various ad hoc supplements and devices have been added to the official system to deal with important cases of recruitment and retention.

The challenge for UC and UCLA is to bring the informal system and the official system into better alignment. As a public university, UC’s personnel practices regarding faculty and staff are open to far more scrutiny than would be found at private universities. So it is important that the evolving pay system be seen as consistent with good practice generally when measured against other large organizations.

A good start for bringing about such consistency would be to review practices at universities with which UC competes. As it happens, there is a recognized group of such universities, known as the Comparison-8, with which UC faculty pay scales are regularly compared. This group is widely recognized as appropriate for purposes of comparison by such external agencies as the California Department of Finance.

In the past, UC has simply acquired salary information from the Comparison-8. But a review process for UC might also involve conducting a more in-depth investigation of how pay is determined at the Comparison-8, as opposed to what the pay outcomes currently are. If UC pay practices — as well as pay levels — can be shown to be in line with other top universities, public confidence in the UC system will be enhanced.

Hirsch is professor emeritus of economics. Mitchell is a professor at the School of Public Affairs and the UCLA Anderson School of Management, where he holds the Ho-su Wu Chair in Management.