Salaries and benefits remain largest college expenditure

St. Olaf College faces a worsening financial outlook, with costs growing at twice the rate of revenue and budget shortfalls looming in the near future. The college administration undertook the Strategic Resource Allocation Project (SRAP) to reverse this trend and reapportion resources to improve the college’s operations. According to administrative data, increasing wages and benefits for non-instructional employees have been one of the main drivers of rising costs facing the College.

Since 2008, salaries and benefits have accounted for roughly 56 percent of all expenditures (excluding financial aid), rising from $57.7 million to $69.6 million. However, compensation data reveals that spending on faculty salaries has stayed fairly stable over the last ten years, with faculty wages roughly equal to what they were in 2008 after adjusting for inflation and the number of faculty members staying nearly the same. The stability of expenditures on faculty compensation indicates the $11.9 million increase in spending on salaries and benefits has been driven primarily by salary increases for non-teaching employees.

Non-instructional employees include everyone from admissions officers to the accountants who help keep the college running smoothly. However, little attention has been paid to the steady increase in expenditures over the years on their wages and benefits. When asked last fall about the cause of rising costs, Vice President and Chief Financial Officer Janet Hanson cited increasingly generous financial aid, health care spending and new expenditures from federal regulations.

Spending on financial aid has steadily increased. Expenditures on tuition discounts not covered by external grants and endowment income increased from $36.8 million to $68 million over the last ten years, and the College’s net revenue has declined 12 percent as a result. Health care costs have also been rising at a breakneck pace of 55 percent over the last 10 years, from $3.9 million to $6.1 million. The college spent about $470,000 on compliance with new Affordable Care Act and Fair Labor Standards Act regulations. In recent years, the College has allocated $167,000 annually for Title IX-related expenses.

However, spending on wages and salaries is larger than all these costs. According to Michael Goodson, Vice President for Human Resources, the low unemployment rate and fierce competition between employers is the reason wages have been rising.

“Although we do not track average salary by year, wages as a whole have been going up steadily,” Goodson said. “Unemployment levels are near record lows, so we have to pay more to hire employees when they start.”

However, wages and benefits have not been rising for St. Olaf’s instructional employees despite the low unemployment rate and wage growth at other institutions. According to the American Association of University Professors, salaries for full-time faculty rose 0.5 percent in 2017, 2.7 percent in 2016, and 2.9 percent in 2015, adjusting for inflation. The Bureau of Labor Statistics estimates that employment of post-secondary teachers is expected to grow “much faster than the average for all occupations.” Coupled with the rise in wages for St. Olaf’s non-instructional employees, these statistics raise the question of why professors at St. Olaf are not also seeing pay increases.

“This difference is mainly because when faculty retire, they are usually full Professors with many years of service and higher salaries due to the salary increases they have received over the years,” Goodson said. “When new faculty are hired to replace retiring faculty, they are usually hired in as Assistant Professors with just a few years of experience at a lower salary than full Professors. Thus, the tight labor market has less of an impact when hiring replacement faculty.”

Goodson also attributed rising expenditures on wages and benefits to “annual salary increases for faculty and staff, internal promotions, and the hiring of a few strategic positions due to business need.” These positions include a full-time Athletic Director, Vice President of Human Resources, Chief Marketing Officer, in-house General Counsel and Title IX officer.

How the college addresses rising costs will become more clear as the SRAP process continues.

“The SRAP instructional and non-instructional review groups are in the process of reviewing the questionnaire responses that have been submitted by every department/program on campus. These groups will be making allocation recommendations to the SRAP Steering Committee beginning in April,” Hanson said.

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