Executive Vice President and Treasurer Lou Katz discusses the university’s process for determining its annual budget and compensation pool.
With the university preparing to enter open enrollment season, a time when faculty and staff may make changes to their current benefit plans, George Washington Today sat down with Executive Vice President and Treasurer Lou Katz to provide insight into how budget decisions are made about funding the university’s benefits for faculty and staff.
Q: How does the budget process work?
A: The George Washington University Board of Trustees is responsible for approving the university’s operating budget every year. Each spring, the university submits a comprehensive budget proposal for the new fiscal year to the board for consideration and approval. The proposal is created with extensive input from university departments and the budget office with the university’s strategic mission in mind. The budget proposal is based on estimated revenue and expenditures, and includes recommendations for how much funding should be put toward various GW programs, new initiatives and compensation. This year, the board approved the FY 2015 budget on May 16.
Q: Who decides how much money goes toward university benefits?
A: The percentage of university funding allocated to benefits such as medical, prescription drug, tuition, disability and retirement (called “fringe benefits”) is directly related to the percentage of the budget allocated to compensation. So, when the board approves a 3 percent increase in compensation, the fringe benefits budget likewise increases 3 percent. The amount of money allocated to university benefits is tied to compensation because benefits are a function of salary. Some items in the benefit pool increase directly with salary (e.g., retirement plan contributions, employer share of taxes) and others are directly impacted by the number of employees using the benefits (e.g., health coverage, tuition benefits).
Q: How is the 3 percent decided? Why was that number recommended to the board?
A: The university has recommended a 3 percent increase in the compensation pool for the last several years. This amount is recommended to the board based on several factors, including forecasted revenue and general economic and market conditions.
Q: Can GW contribute more to the compensation pool?
A: All of the university’s funding is interconnected and is a result of revenues and expenditures. The largest expenditure is compensation, which includes salaries and fringe benefit expenses. Increasing the percentage of the budget allocated to the fringe benefit portion of the compensation pool would require us to take funding from another place. A suggestion I often hear is to reduce merit increases to increase GW’s contribution for benefits. However, lowering merit increases to increase the fringe benefit pool would impact faculty and staff who do not participate in the university’s benefit plans and could impact recruitment and retention over time.
Q: How does GW’s compensation pool compare to other universities?
A: I can’t comment on how GW’s compensation pool compares to other universities as universities have different sources of revenue, endowment levels and expenditures. GW’s operating budget is based on the estimated revenue and expenditure levels expected for that year. Every year, we look strategically at the budget and submit a proposal that maximizes the university’s monetary resources, with focus on continued investments to support the strategic plan. Overall, when you compare all of our benefits, which include medical, prescription drug, tuition, disability and retirement, GW remains highly competitive in the higher education marketplace.
Q: What is the review process to determine how benefit decisions are made?
A: GW, like all employers, has the challenge of maintaining competitive benefits plans while balancing increases in the cost of medical care. University leadership works to ensure that the university is providing the most robust fringe benefits plans possible within the board approved budget allocation. Each year, the university conducts a comprehensive review of its benefit plans and all related costs with the help of faculty and the Benefits Advisory Committee. This review identifies strengths of the university’s current benefits and identifies areas for potential modification. Ultimately, the university aims to offer the most robust benefits plans for the amount of money allocated to the fringe benefits pool, as well as minimize future increases to employee premiums.