1. Faculty Senate Salary and Benefits Committee Merit System Analysis Yvonne Stedham, Chair March 30, 2016 SBC/Stedham March 20161

2. Background Role of Analyst - Not Advocate HR Expertise – Compensation Design Twelve Committee Members – Administrative, Academic – Across Colleges and Units SBC/Stedham March 20162

3. Compensation Design Challenges Criteria – Fairness and Equity – Attract, Motivate, Retain SBC/Stedham March 20163

4. Compensation Design Challenges Three Types of Equity 1.External Equity - Market 2.Internal Equity - Positions in the Organization 3.Individual Equity - Person, same Position, same Organization SBC/Stedham March 20164

5. Compensation Design Challenges Difficulties in reconciling all three types of equity SBC/Stedham March 20165

6. Compensation Design Challenges For example “Salary Compression” Results from the need to meet the market, external equity (attraction and retention) And at the same time maintaining salary differences within the organization that reflect the worth of a position, internal equity SBC/Stedham March 20166

7. Salary Compression Designed Midpoints of Salary Ranges in a Certain Discipline (based on internal equity considerations): Professor$100,000 Associate $ 70,000 Assistant$ 55,000 => Range Spread $45,000 SBC/Stedham March 20167

8. Salary Compression Actual Midpoints of Salary Ranges in a Certain Discipline (because of higher market salaries for Assistant): Professor$100,000 Associate $ 90,000 Assistant$ 70,000 => Range Spread $30,000 SBC/Stedham March 20168

9. Merit Individual Equity – Performance Based Pay One way to recognize individual contributions – Unique because merit is NOT a one-time award but affects base salary Purpose – Motivation (Attraction, Retention) SBC/Stedham March 20169

10. Merit Challenges 1.Measurement of Performance (Separate Topic) 2.Determination of Meaningful Dollar Amount (Effect on motivation and attraction and retention) SBC/Stedham March 201610

11. Meaningful Dollar Amount Current System – Steps – Specified dollar amount for each level of performance – The percentage increase in salary depends on the employee’s base salary – higher percentages for lower base salaries More impact (higher percentage increase) for employees with lower pay levels. May result in perceptions of inequity for employees with higher base salaries. This system contributes to salary compression. SBC/Stedham March 201611

12. Meaningful Dollar Amount Alternative System – Percentages – Specified percentage for each level of performance – The dollar amount received depends on the employee’s base salary – larger amounts for higher base salaries More impact (higher dollar amounts) for employees with higher pay levels May result in perceptions of inequity for employees with lower base salaries. SBC/Stedham March 201612

13. Meaningful Dollar Amount Modified Step (Hybrid) System – Each level of performance is associated with a specific dollar amount (step) AND with a specific percentage – Integrates the two opposing systems and presents a compromise – Impact of base salary is “softened” SBC/Stedham March 201613

14. Comparison –Step and Modified Step See Handout for Example – Hypothetical Four salary levels to capture the entire salary range across academic and administrative faculty: $40,000, $ 60,000, $ 90,000, $ 120,000 Four performance ratings – Commendable 1, Commendable 2, Excellent 3, Excellent 4 SBC/Stedham March 201614

15. Step Amounts 1.Total number of academic plus administrative faculty: 1,600 2.Estimated average salary: $80,000 3.Total UNR Salary: $80,000x1,600=$128 M 4.Merit Pool 2% of Total UNR Salary: 2% of $128 M = $2.56 M 5.Mean performance rating = 2.5 6.Total Number of Steps: 2.5x1,600 (number of faculty) = 4,000 7.Amount per Step: Total Merit Pool $2.56 M : Total Number of Steps 4,000 = $640 SBC/Stedham March 201615

16. Percentages Not COLA Motivational Effect: Based on mean increase at comparison institutions (CUPA) Cost Neutral – Empirical Derivation Percentage for each Performance Level (1/2 of reported amount for 2014/2015) Excellent 4 – 3.50% Excellent 3 – 2.50% Commendable 2 – 1.50% Commendable 1 –.50% SBC/Stedham March 201616

17. Modified Step (Hybrid) System Total Merit Pool divided by 2  Half of the pool for Steps (1.28 M),  Half of the pool for percentages (1.28 M) Steps => $320/step (Step only: $ 640) Percentage (Half of Percentage only) Excellent 4 – 1.75% Excellent 3 – 1.25% Commendable 2 –.75% Commendable 1 -.25% SBC/Stedham March 201617

18. Modified Step (Hybrid) - Example Performance Step Only Amount Modified Step (Hybrid ) Percentage Only 4 Excellent$2,560$1,2801.75%3.5% 3 Excellent$1,920$9601.25%2.5% 2 Commendable $1,280$640.75%1.5% 1 Commendable $640$320.25%.5% SBC/Stedham March 201618

19. SBC/Stedham March 201619 Performance Rating $40,000 Step OnlyModified Step (Hybrid)Percentage Only 4 Excellent $ Amount Increase $2,560 New Salary $42,560 $ Amount Increase $1,980 New Salary $41,980 Percentage 3.5 New Salary $41,400 1.75% $700 $ Amount $1,400 Step $1,280 3 Excellent $ Amount Increase $1,920 New Salary $41,920 $ Amount Increase $1,460 New Salary $41,460 Percentage 2.5 New Salary $41,000 1.25% $500 $ Amount $1,000 Step $960 2 Commendable $ Amount Increase $1,280 New Salary $41,280 $ Amount Increase $940 New Salary $40,940 Percentage 1.5 New Salary $40,600 0.75% $300 $ Amount $600 Step $640 1 Commendable $ Amount Increase $640 New Salary $40,640 $ Amount Increase $420 New Salary $40,420 Percentage 0.5 New Salary $40,200 0.25% $100 $ Amount $200 Step $320

20. SBC/Stedham March 201620 Performance Rating $60,000 Step OnlyModified Step (Hybrid)Percentage Only 4 Excellent $ Amount Increase $2,560 New Salary $62,560 $ Amount Increase $2,330 New Salary $62,330 Percentage 3.5 New Salary $62,100 1.75% $1,050 $ Amount $2,100 Step $ 1,280 3 Excellent $ Amount Increase $1,920 New Salary $61,920 $ Amount Increase 1,710 New Salary $61,710 Percentage 2.5 New Salary $61,500 1.25% $750 $ Amount $1,500 Step $960 2 Commendable $ Amount Increase $1,280 New Salary $61,280 $ Amount Increase 1,090 New Salary $61,090 Percentage 1.5 New Salary $60,900 0.75% $450 $ Amount 900 Step $640 1 Commendable $ Amount Increase $640 New Salary $60,640 $ Amount Increase 620 New Salary $60,470 Percentage 0.5 New Salary $60,300 0.25% $150 $ Amount $300 Step $320

21. SBC/Stedham March 201621 Performance Rating $90,000 Step OnlyModified Step (Hybrid)Percentage Only 4 Excellent $ Amount Increase $2,560 New Salary $92,560 $ Amount Increase $2,855 New Salary $92,855 Percentage 3.5 New Salary $93,150 1.75% $1,575 $ Amount $3,150 Step $1,280 3 Excellent $ Amount Increase $1,920 New Salary $91,920 $ Amount Increase 2,085 New Salary $92,085 Percentage 2.5 New Salary $92,250 1.25% $1,125 $ Amount 2,250 Step $960 2 Commendable $ Amount Increase $1,280 New Salary $91,280 $ Amount Increase 1,315 New Salary $91,315 Percentage 1.5 New Salary $91,350 0.75% $675 $ Amount 1,350 Step $640 1 Commendable $ Amount Increase $640 New Salary $90,640 $ Amount Increase 545 New Salary 90,545 Percentage 0.5 New Salary $90,450 0.25% $225 $ Amount $450 Step $320

22. SBC/Stedham March 201622 Performance Rating $120,000 Step OnlyModified Step (Hybrid)Percentage Only 4 Excellent $ Amount Increase $2,560 New Salary $122,560 $ Amount Increase 3,380 New Salary 123,380 Percentage 3.5 New Salary $124,200 1.75% $2,100 $ Amount $4,200 Step $1,280 3 Excellent $ Amount Increase $1,920 New Salary $121,920 $ Amount Increase 2,460 New Salary 122,460 Percentage 2.5 New Salary $123,000 1.25% $1,500 $ Amount $3,000 Step $960 2 Commendable $ Amount Increase $1,280 New Salary $121,280 $ Amount Increase 1540 New Salary 121,540 Percentage 1.5 New Salary $121,800 0.75% $900 $ Amount $1,800 Step $640 1 Commendable $ Amount Increase $640 New Salary $120,640 $ Amount Increase 620 New Salary 120,620 Percentage 0.5 New Salary $120,600 0.25% $300 $ Amount $600 Step $320

23. Effects of the Modified Step System In comparison to Step only, increase in merit dollar amounts for higher base salaries In comparison to Percentage only, increase in merit dollar amounts for lower base salaries Meaning of award and motivational impact Cumulative effects over 5 years Side effect on compression Benefits versus Cost/Disadvantages of Modified Step Model????? SBC/Stedham March 201623