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Business Officer Magazine
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The Personal Touch

Take time to plan for the human side of institutional decisions.

By Rick Staisloff

People costs (salary and benefits) are typically the most expensive component of running an institution, comprising an average of 65 percent of total costs. Within an academic department, salary and benefits can represent 90 percent or more of costs, similar to comparative figures reported through the Delaware Cost Study. These people costs also represent one of the fastest-growing components of any institution’s budget. Prior to the slowdown in salary growth seen in FY10, salaries across all of higher education had risen approximately 4 percent annually over the past five years. Benefits costs increased even faster, rising approximately 8 percent during the same period. If institutions are going to increase efficiencies, reallocate to areas of strength, and create new economic engines, they must address the allocation of human resources.

Any successful plan to review and evaluate academic programs must include a consideration of human resources, particularly when seeking opportunities for reallocation. The need to pay careful attention to human resource costs may be obvious on most campuses, but what is not always obvious is how to address these costs in ways that won’t fracture the institution.

College of Notre Dame of Maryland, Baltimore, has adopted a threefold approach for addressing reallocation of personnel and resources to programs that better meet its mission, market, and margin opportunities. This approach focuses on recapturing vacancies, providing avenues for retirement, and partnering with academic leadership.

Vacancy Belongs to the Institution

One of the simplest and least painful ways the college was able to reallocate positions on campus was the adoption of a policy that all vacancies belong to the institution, not the department. This policy creates an annual pool of positions and associated dollars that can be reallocated to support strategic institutional initiatives. The pool of faculty positions is managed by the chief academic officer, often with input from the chairs, and the pool of staff positions is managed by the chief financial officer. All decisions on reallocation or elimination to obtain budgetary savings are made with oversight of senior staff.

While this strategy for reallocation and savings has a longer-term time horizon, on an annual basis even smaller institutions will find the dollars recaptured from turnover to be significant. The experience at Notre Dame has been very positive in this regard. Once this policy was implemented, unproductive personnel lines were recaptured immediately by the CAO and reallocated to growing programs. On an annual basis, an average of 5 percent of total faculty lines are recaptured and reallocated in this way.

A Gracious Retirement Plan

One of the least painful ways the college was able to reallocate positions was the adoption of a policy that all vacancies belong to the institution, not the department.

Tenure remains a fixture of the higher education landscape, even with the increase in adjunct faculty hires and some movement toward multiyear contracts. Despite the lack of flexibility this suggests, institutions do have options to address reduction and reallocation of people on their campuses. At Notre Dame, the college provides a predictable and gracious transition to retirement through a phased-retirement program. Faculty members enter into legal agreements with the institution, under which they waive their tenure rights and agree to retire within a specified period.

Under such a program, faculty move steadily from full-time to part-time status (no less than 50 percent), and then ultimately retire. This transition should take place over no more than three years, and eligible faculty must meet minimum thresholds for age and years of service. During the phased-retirement period, faculty remain benefit eligible. The phased-retirement program also includes ways for faculty to remain connected to campus life through shared office space, library and parking privileges, and access to campus facilities and events.

The advantage of the phased-retirement program is that it offers a clear path toward retirement for both the faculty member and the institution. Roles and responsibilities are clearly noted in the agreement. Most importantly, the contractual nature of the agreement allows the institution to confidently plan for salary reduction or reallocation.

Within the current economic climate, institutions are also increasingly offering early retirement options to create incentives for eligible employees to consider making that transition. These early retirement or voluntary-separation programs include additional salary payments and continued health benefits, typically representing up to a year of salary and benefits. Early retirement plans have met with mixed results in higher education and Notre Dame’s experience is no exception. While staff response to early retirement offerings has been strong, faculty have shown limited interest in this option.

Data-Driven Buy-In From Every Level

Effective reallocation discussions require a strong partnership between the CFO and CAO at an institution, and that effectiveness is increased as buy-in is obtained from all levels of the organization. At Notre Dame, the college has expanded access to information on academic programs so deans and department chairs are more informed about demand and yield, cost and workload measures, and net revenue. The purpose of this effort is to avoid “arguing about the facts” and focus the college’s attention on key decisions about reallocation and investment. This expansion of data and analysis helps to support new performance expectations.

Expectations about academic quality now include targets for student yield, efficiency, and net revenue, and this approach creates a new level of accountability for departments.

At the same time, it offers an opportunity for deans and department chairs to increase student enrollment and reduce costs. These increases in net revenue are available for reinvestment and provide an incentive for creating new models for departments to achieve their academic goals. Providing key metrics, clearly stating performance expectations, and sharing increases in net revenue allow the college to move the reallocation conversation out of the board meeting into every level of the organization.

The terms “reallocation,” “people costs,” and “rightsizing” are common today; however, they fail to recognize the human side of institutional decisions to reduce or redistribute positions on a campus. The best strategies clearly communicate institutional strategic priorities and are transparent about decision making. Ultimately, the goal is to free up resources to support strategic initiatives, while respecting the people, culture, and mission of the institution.

RICK STAISLOFF is vice president for finance and administration, College of Notre Dame of Maryland, Baltimore.

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