Faced with increasing costs and a weak economy, the University announced a pay freeze for upper level administrators and the discontinuation of end of the year bonuses for all employees for the next fiscal year, which begins in July.
According to a memo from University President Judith Rodin and University Provost Robert Barchi, pay for all employees at or above the vice presidential level will be affected by the pay freeze.
However, modest pay increases are possible for other employees. Penn has a 2 percent salary pool for the next fiscal year, meaning money is available for individual salary increases up to 3.5 percent for employees below the vice presidential level.
According to Vice President for Human Resources Jack Heuer, there was a 2.8 percent salary pool last year, with salary increases available up to 5 percent.
Heuer assured that with the increases, "our market salary pool remains competitive."
The memo cited rising health care and utility costs, along with "only modestly, if at all," rising revenues.
The pay changes are part of a plan to reduce University spending "by about $20 million," according to the memo.
Still, the University seems to be faring better than many of its peers.
"We really are in good shape financially, and that's because we're careful about how we spend money," University spokeswoman Lori Doyle said.
The pay changes represent the University's ongoing efforts to remain financially stable in difficult financial times.
"We, for several years, have been trying to reduce our expenses and have been very careful so that we don't have to have layoffs or anything like that," Doyle said.
This contrasts sharply with many of Penn's peer institutions, according to the memo, including the Massachusetts Institute of Technology and Yale, Stanford and Rice universities, "which have announced layoffs, salary reductions and/or freezes and delays in construction projects."
However, Penn is at a disadvantage to its peers with larger endowments who are more easily able to absorb rising costs.
A major factor in the budget changes includes household incomes which have fallen over the course of the recession, requiring increased spending for financial aid, the memo said.
A University press release explains that Penn "must use operating revenue to cover financial aid while Princeton [University], for example, with an endowment of $8 billion, is able to cover financial aid with endowment revenue -- freeing up operating dollars for other things."
Senior Vice President for Finance and Treasurer Craig Carnaroli said the salary changes will have no direct impact on students.
"We're not actually cutting resources in any areas that support students," Carnaroli said.
In addition, Carnaroli said that the budget changes ensure that the University will not be forced to raise tuition any more drastically than expected next year.
The upper level administrators affected by the pay freeze and bonus discontinuation realize the need for such measures.
"In lean times, it's common for senior management to forego salary increases," said Doyle, who falls in the pay freeze category. "It's the right thing to do financially and ethically."
"I am comfortable with the decision and understand why it is necessary," she added.
Carnaroli agreed.
"As the person who is probably closest to the numbers I see the need to take a step for action," he said. "It would be unfair for us not to participate in some way and so I think it's part of the overall plan, and I'm comfortable with it."
"I think that the upper level salary freeze demonstrates our belief in fiscal responsibility for the University," Heuer said.
