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University of Pittsburgh

October 12, 2006

SENATE MATTERS

Is Pitt’s salary increase policy flawed?

bakerIn my Sept. 14 Senate Matters column, I discussed the importance of keeping faculty salaries competitive in fostering academic excellence at Pitt. In this column I discuss Pitt’s salary policy and examine the effect of various pay raise combinations over the last 10 years on average fiscal year 1995 Pitt faculty salaries.

The University’s current salary increase policy went into effect in 1994. It has four components: 1) maintenance of real salary; 2) merit increases; 3) equity adjustments, and 4) market adjustments.

The chancellor determines the portion of the total raise pool to be devoted to each pool component, with help from the University Planning and Budget Committee (UPBC).

The policy calls for funds to be allocated to each responsibility center on a uniform percentage basis for maintenance of real salary and for merit, and differentially for equity and market increases. Thus, every unit receives the same designated percentage for maintenance of salary (1.75 percent this year) and merit, market or equity adjustments (1 percent this year). The remaining portion (0.5 percent this year) is distributed to units based upon demonstrated needs for market or equity adjustments.

Pitt’s salary increase policy correctly identifies the pay issues that need to be addressed. However, it does not require the maintenance of real salary component to be fully funded — and in nine of the last 11 years it has not been. Consequently, faculty and staff who received only the maintenance component of the annual pay raise during this period have suffered an 8.4 percent loss in buying power, as demonstrated in Table 1, which shows what happened to the average fiscal year 1995 associate professor’s salary of $53,400 upon receiving the listed pay raises.

Table 1. The effect on the average FY95 Pitt associate professor salary of $53,400 of receiving annual pay increases from FY96 to FY06 equal to A) the consumer price index for urban wage and clerical workers (CPI-W) for the previous year; B) only the maintenance component of Pitt’s annual salary pool increase; C) both the maintenance and the merit components of Pitt’s annual salary pool increase, or D) the full amount of Pitt’s annual salary pool increase.

SM table 1.rtf

The average salary of a Pitt associate professor in FY06 was $75,500.

As Table 1 reveals, the average FY95 associate professor would have needed an FY06 salary of $69,777 (column A) just to keep pace with the same buying power as in FY95.

Receiving only the maintenance component of Pitt’s annual salary increase (column B) would have produced a FY06 salary of $63,950, which is $5,827 (8.4 percent) below the amount needed to maintain the same buying power as in FY95. More importantly, the hypothetical loss in revenue will continue to compound in every subsequent year of employment, so it has the potential to produce a large net loss in lifetime earnings and retirement benefits, compared to having received annual pay increases equal to the previous year’s consumer price index (CPI-W).

Receiving both the maintenance component and the merit component of Pitt’s annual salary increase (column C) would have produced an FY06 salary of $71,895, which is $2,118 (3 percent) higher than the amount needed to maintain the same buying power as in FY95.

Receiving the full amount of Pitt’s annual salary pool increase (column D) would have produced an FY06 salary of $74,953, which is $5,176 (7.4 percent) higher than the amount needed to maintain the same buying power as in FY95. This is an average increase of $471 (0.67 percent) per year above inflation for the 11-year period. Also note that the $74,953 figure is slightly below the current FY06 average salary for an associate professor at Pitt ($75,500).

Table 2 shows the calculations produced by a similar analysis with average FY95 salaries for professors, assistant professors and librarians. All of these levels, had they received only the maintenance component of Pitt’s annual salary increase from FY96 to FY06 (column B), would have lost the same 8.4 percent in buying power as our average associate professor did. Had they received both the maintenance component and the merit component from FY96 to FY06 (column C), all of them would have gained the same 3 percent in buying power as associate professors. They would have gained the same 7.4 percent increase had they received the full amount of Pitt’s annual raise pool from FY96 to FY06 (column D).

Table 2. The effect on average FY95 Pitt salaries for professors, associate professors, assistant professors and librarians of receiving annual pay increases from FY96 to FY06 equal to A) the consumer price index for urban wage and clerical workers (CPI-W) for the previous year; B) only the maintenance component of Pitt’s annual salary pool increase; C) both the maintenance and the merit components of Pitt’s annual salary pool increase, or D) the full amount of Pitt’s annual salary pool increase.

SM table 2.rtf

The actual FY06 average salaries of professors ($113,200) and librarians ($59,400) at Pitt are 5.7 percent and 13.8 percent higher, respectively, than predicted by the cumulative sum of the annual salary pool increases from FY96 to FY06 ($107,096 and $52,215, respectively). This merely shows that faculty in these ranks received slightly higher merit, market or equity adjustments than the annual pool increases. Librarians moved from near the bottom of the AAU salary rankings in FY95 (46th out of 53) to 34th out of 56 schools in FY06, an appropriate adjustment indicating that the current Pitt administration is responsive to a demonstrated inequity.

While these calculations are based on averages, they nonetheless illustrate several important points about Pitt’s recent salary practices. In most years, faculty and staff have lost buying power to inflation if they received only the maintenance component of the annual pay raise. They needed to receive both the maintenance and merit components of the annual pay raise to stay slightly ahead of inflation. In the last two years, even receiving the full amount of the pool increase would cause the average Pitt employee to lose purchasing power to inflation.

So who or what is to blame for this undesirable situation? I fault our state legislature for its inadequate funding of higher education relative to other states. Pennsylvania ranks only 44th out of the 50 states in per-capita tax appropriations for higher education, while its public universities charge the nation’s second highest tuition and fees. A logical conclusion is that the majority of our state legislators believe that higher education is not worthy of the higher investment rate that other states give it. Yet Pitt does more than educate students (which in and of itself is valuable). It generated $3.50 in external research support ($625 million total) for each dollar it received in the state appropriation last year — money that for the most part goes directly into Pennsylvania’s economy.

I do not blame the chancellor or the University’s pay raise policy, which is basically sound. Pitt’s annual pay increases are underfunded due to economic constraints with which the chancellor has little choice but to cope as best he can. True, one can reasonably argue that a higher percentage of the raise pool ought to be allocated for maintenance of salary, with smaller amounts for merit or central adjustments. But one can also make a valid argument for retaining the capacity to reward faculty and staff who perform meritoriously, and to make market and equity adjustments — and I generally am inclined to agree with this latter view.

On the other hand, I also believe that Pitt’s chairs, deans and other administrators have a responsibility to make certain that faculty and staff who perform satisfactorily (or better) do not receive evaluations that will result in a loss in real wages. There is extra money in the system due to centrally held funds and unfilled positions (usually about 1 percent per year), which could be distributed in part to satisfactorily performing faculty and staff, and in part to provide higher merit increases for outstanding faculty and staff. No Pitt employees should suffer a loss in real wages unless they are performing unsatisfactorily.

In years when the maintenance of salary component of the annual pay raise is significantly underfunded — like this year — I would hope to see a significant portion of the central fund pool go to combating the effects of inflation for all satisfactorily performing faculty and staff. The chancellor could determine the amount. It could even be distributed as a flat sum (e.g., $200) to all satisfactorily performing employees, which would be especially beneficial to lower-paid employees. Such a program would be easy to carry out and would help maintain collegial relations between administrators and hard-working lower-paid employees in troubled economic times.

John J. Baker is president of the University Senate.


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