Questions and Answers: State Auditor's Report on CSU

Why was this audit conducted?

The audit was requested by the Joint Legislative Audit Committee on April 17, 2007. The audit request followed media reports published in July 2006 regarding CSU Board of Trustee policies governing professional transition programs for campus presidents and system executives. The audit request also followed media coverage and a state audit of compensation practices at the University of California in 2005 and 2006.

What was the goal of the audit?

According to the Bureau of State Audits' Audit Scope and Objectives, the goal of the audit was to "provide independently developed and verified information related to the compensation and hiring practices as well as settlements at CSU." The auditor's full scope and objectives document can be found here (.pdf). The auditor separated the reports into two installments: the report on compensation practices published on November 6 and the report on hiring practices anticipated for release in December.

What were the audit's key findings?

The audit made three key findings. First, the audit found that CSU should strengthen its monitoring of compensation policies and practices. Second, the audit concluded that the administration of postemployment compensation requires continued oversight and improved policies. Third, the audit found that current policies on moving and relocation expenses and dual employment need to be clarified and strengthened.

Did the audit find violations of CSU's compensation or other policies?

No. The audit found that all actions taken were allowed under relevant CSU policies. The audit did find a limited number of cases where exceptions were made to written policy based on the judgment and discretion of either the Chancellor or a campus president, which is provided for under these policies. The audit cited cases where cost savings had been realized for the university as a result of discretionary decisions.

Did the audit find that the CSU has been secretive about its executive compensation practices?

No. The audit confirmed that increases in salaries, housing allowances and automobile allowances were done via resolutions passed by the Board of Trustees at public meetings. The audit also confirmed that the Board delegates to the Chancellor authority for negotiating transition agreements and that all such agreements were properly disclosed. Finally, the audit found that the Board's November 2006 revision to its executive transition program now requires the Chancellor to provide a copy of transition agreements to all trustees, and discuss them as an information item at the next meeting of the Board's university and faculty personnel committee. This revision also requires the Chancellor to provide an annual report on all executives participating in transition programs.

Did the audit conclude that any of CSU's policies were inappropriate?

No. While the auditor made recommendations for strengthening policies relating to leaves of absences for management personnel and reimbursement of moving expenses, it did not conclude that these policies were inappropriate or inconsistent with programs offered by other institutions.

How did the State Auditor recommend the CSU address the audit's key findings?

The Auditor made recommendations in six areas: enhanced monitoring of compensation policies; utilization of total compensation for comparing employee salaries with other institutions; continued monitoring and additional reporting on details of executive transition agreements; development of stricter state regulations governing leaves of absences for management personnel; stronger policy governing the reimbursement of relocation expenses; and imposing disclosure and approval requirements on outside employment for faculty and other employees through changes in state law or collective bargaining.

What is the CSU's response to the audit?

The CSU is satisfied that the audit was conducted in a thorough and professional manner and that the findings and recommendations were presented in a fair and balanced manner. The audit provides helpful guidance to better define employee compensation policies, while maintaining the necessary flexibility needed to recruit among the best executives and faculty in a highly competitive market.

The CSU has concerns that the presentation of salary data, while accurate, is lacking in context and could be misleading. For example, the audit does not note that a major reason for the reduction in tenure track faculty was the "Golden Handshake," an early retirement incentive program offered only to faculty and approved by the Legislature in 2004 as a means of generating cost savings to address the significant state budget constraints that severely impacted the CSU.

For the CSU's official response, click here (.pdf).

Will the CSU implement the auditor's recommendations

Yes. The CSU agrees in concept with all of the auditor's recommendations and will be implementing them as soon as feasible. The Board of Trustees will take up the recommendations and determine methods for implementing them - whether through clarifying existing policy, establishing new policy or seeking changes in state law. To view a chart of past and future CSU actions that address the recommendations, click here (.pdf).

Why have executive salaries increased by a larger amount than other employees?

In order to recruit and retain the best employees, the Board of Trustees has established a goal of closing the salary lags between all CSU employees and their peers at comparable institutions. Since the lag for each group is different, (executives lagged 46 percent behind their peers in 2006 vs. 18 percent for faculty) salary increases have varied in an attempt to bring each group up to the market.

As noted previously, while salary increase figures noted in the audit do accurately reflect overall dollars, they do not necessarily reflect the salary increases an individual would have received during the five-year time period. The Golden Handshake led to a significant increase in the retirement of higher-paid senior faculty in 2004, who were replaced with lower-paid junior faculty or temporary faculty in order to garner the anticipated budget savings. This creates a negative impact on salary growth for faculty, even though the increases for an individual faculty member who stayed with the university would have been greater.

Finally, the audit mixes salary amounts for executives and management personnel, who earn salaries based on twelve months of work, with faculty, who earn salaries based on 10 months of work.

Why has the university only used cash compensation for determining employee salary lags?

Cash compensation for executives and faculty has historically been the only direct measurement that the California Postsecondary Education Commission (CPEC) has made with its list of 20 comparison institutions. While salary is a useful benchmark, the CSU in 2006 commissioned independent research to analyze total compensation for executives and faculty to help direct its actions on employee compensation. The CSU supports the auditor's recommendation to work with CPEC and others to develop a sound methodology for comparing total compensation, but believe it is important that the methodology be consistently applied for all employee groups.

Why have management personnel positions grown faster than faculty positions?

The growth of tenure track faculty was significantly impacted by the Golden Handshake. Of the 700 faculty who retired in 2004, 432 took the Golden Handshake. This program, approved by the Legislature, met its intended goal to reduce the number of senior, higher-paid faculty, many of which were replaced with junior or temporary faculty in order to generate the anticipated cost savings.

While the CSU is still experiencing a high rate of faculty retirement, it is committed to increasing the number of full-time faculty and conducts 1,100 searches per year for full-time faculty. In fact, when temporary positions are excluded, faculty represents 58 percent of the growth in General Fund positions since 2002-03 while executives and management personnel represent 17 percent.

The growth in management personnel has been driven, in part, by the activities which fund those positions. These positions are paid through self-supporting activities, such as parking and student housing operations, not state support. Such positions represent more than half the increase in management personnel and salaries in recent years. A substantial majority of the growth in state-funded management positions is a result of the university's management of its $3.5 billion worth of construction. Although there were reductions in the university's operating budget during 2002 - 2005, the capital budget was funded.