Bending the Administrative Labor Cost Curve
Executive strategies for sustainable, long-term labor savings
To help business executives slow administrative labor growth, this report provides 12 executive best practices to implement the necessary cross-silo tools and incentives to achieve meaningful savings.
Executive summary: Current state of higher education labor spending
Facing increasingly tighter budgets, colleges and universities are exploring any and all principled methods to control costs. Clearly, labor comprises the vast majority of costs at all institutions, often 60% to 70% of operating budgets. So, while there are other meaningful cost savings opportunities, few institutions will be able to significantly impact costs without addressing labor.
To date, most institutions have sought to reduce administrative labor costs before touching the academic core. There are sound financial and mission-related reasons institutions may choose to avoid faculty layoffs and focus cuts on administration. However, institutions too often cut administrative staff because it is more expedient, not because it is right answer. Further, indiscriminant administrative cuts can cause significant damage to the institution, including drops in staff morale, negative impact on productivity and risk compliance, and potential negative press.
Most troubling, labor cuts often do not ultimately achieve the intended savings. At roughly two-thirds of institutions that cut labor, labor costs grew faster in the three years following the cut than the three years before the cut.
Rather than enacting painful and ineffective cuts, institutions should pursue principled and sustainable savings by slowing labor cost growth or “bending the cost curve.” In this approach, leaders make important structural and operational changes now to slow growth going forward.
Three vital steps to slowing cost growth
-
Incentivize unit leaders to actively find labor savings in their own units
-
Build cross-silo staffing resources that help local leaders effectively fill gaps
-
Prioritize and reallocate staffing dollars across silos to reflect institutional priorities
Creating cost-effective labor alternatives to support local leaders
Without any form of central staffing, unit leaders have three primary labor sources they can reliably secure for unit work: fulltime staff, overtime (in some units), and external temp labor. Each source has appropriate and necessary uses. Full-time staff obviously comprise the bulk of the workforce, overtime can be used to meet unexpected and irregular work, and temp labor is occasionally needed to fill sudden, emergency needs.
This section details two types of staffing alternatives central business executives can create to reduce unit leader dependence on more expensive options and slow labor growth.
Approach #1: Overcoming barriers to cross-silo flexibility among professional staff
The first type of staffing alternative executives should create is flexible professional staff. One of the primary drivers of unit overreliance on costly staffing options is variable workload. For example, a unit may be busiest at the beginning of the semester, but less busy during the middle. Unit leaders often hire full-time staff to meet the busiest periods. This ensures work is completed, but leaves the unit inefficiently overstaffed much of the year.
Instead, institutions should create flexible staff that can absorb work in increments or move to where workload is highest. This would allow units to maintain fewer full-time employees and utilize flexible staff to fill in the gaps during busy periods. By more closely matching staff to work demand, units can significantly reduce labor expense.
Approach #2: Enhancing impact and reliability of student employees
The second type of staffing alternative executives should provide administrative units is student workers. While nearly every college and university already utilizes student workers, most campuses still have opportunities to further leverage this inexpensive labor source.
The cost model below shows that four student employees working 10 hours per week (the equivalent of one FTE) total less than half the salary and benefit costs of one full-time employee. While few full-time staff could be immediately replaced with multiple students, this model illustrates the potentially substantial savings from utilizing more students.
Practice 1: Fifty-fifty split roles
Many institutions struggle to retain skilled employees in part-time positions, who often leave for full-time work and benefits elsewhere. To prevent these challenges and create a reliable source of part-time labor, the University of Maine hires full-time employees and splits them across two units.
The first component for successfully implementing this practice is to design split roles so that the employee performs similar work across his or her two units. The second component is to clearly define shared staff schedules and responsibilities.
Practice 2: Cross-training development plan
Despite senior leader and unit leader interest, few business units have cross-training programs that successfully support variations in workloads. When cross-training is attempted, it is often too complex or time consuming to sustain. A concrete development plan allows for more manageable cross-training, providing unit leaders a consistent staffing resource to better match variable workload.
The first component of creating a cross-training development plan is to teach staff cross-training tasks one by one. Previous cross-training efforts have often failed because unit leaders overload staff with too much information rather than pacing the training over time. The second component is to establish just-in-time refreshers for cross-trained staff. Forecasts that alert units when workload may rise or fall provide leaders a valuable chance to plan and employees time to review important cross-unit information.
The final component is to equip staff with job aides to help them execute their cross-trained responsibilities. UNC Charlotte equips student services employees with an FAQ document that answers many of the questions they will likely receive from students and parents.
Practice 3: Full-time casual
Many institutions successfully use employee spouses and retired former staff in casual roles, who work only as needed. While both sources are generally reliable employees already familiar with the institution, few business units can meet their variable workload with these sources alone. However, building a casual pool with part-time employees from the local labor market often results in under-skilled staff who turnover frequently to seek full-time work elsewhere. As a result, central business units are forced to rely on expensive temporary labor or fund full-time positions for part-time work. By building a centralized casual pool of full-time employees, institutions can attract skilled, dedicated workers to fill temporary needs across campus.
University of British Columbia (UBC) overcame the challenges of constructing a reliable pool of casual employees by hiring full-time and benefited employees. Their Staff Finders Program attracts higher-skilled employees who will not continue to seek full-time work elsewhere.
The first implementation component of Full-Time Casual Pool is to intentionally hire fewer casual workers than needed. The second component is to provide casual pool staff with full-time benefits. The combination of full-time pay and benefits helps institutions attract higher-skilled and more reliable employees.
The final component of this practice is to regularly evaluate casual pool employee performance. The University of British Columbia evaluates employee performance by asking unit leaders to fill out a short evaluation. This allows casual pool administrators to create short-term development plans for individual employee needs and, when necessary, manage out under-performing employees.
Practice 4: Student-worker loyalty rewards
Many units, such as dining and facilities, rely heavily on low-cost student labor. However, they also often suffer from high student turnover rates. By incentivizing students to return to their campus job each semester, departments can reduce hiring and training resources needed to continuously onboard new student employees and create a more stable and reliable source of student labor.
There are three loyalty reward options that incentivize students to return to their campus jobs. The first option is to offer a modest hourly increase each semester a student returns to his or her previously held job. The second option is to offer students a lump-sum bonus each semester they return to their campus job. The third loyalty reward option is to provide hourly increases based on performance, or a form of merit pay for students. Like the basic tiered pay model in Option #1, all students receive a pay increase each semester. However, higher performing students receive larger increases. This approach incentivizes all students to stay, but prioritizes and invests more in retaining top performers.
Practice 5: High-skill administrative internships
While student employees are common in many units, they are much less common in business and financial units. Because of the nature of the work and concerns about information security, business and financial units do not have as many roles that students naturally plug into. If unit leaders craft roles specifically designed for the highest-skilled students that can take on more complex work, business units can take greater advantage of economical student labor and refocus full-time employees on more complex and higher-value work. In some cases, student interns can even replace full-time employees.
The first component to creating administrative internships that attract the best students is to provide real-world professional experience. The second component is to incorporate dedicated professional development opportunities into high-skill student roles. The third component in attracting the best students is to pay interns more than typical student workers. The fourth component is to closely manage the number of internship opportunities so that the acceptance rate stays low. The final component of High-Skill Administrative Internships is marketing on-campus internships alongside external opportunities. Some institutions may need to dispel the misperception that campus jobs offer only menial work and the best internships are off campus.
Leveraging position control to prioritize resources
Unfortunately, unit leaders too often reflexively backfill vacant positions. This only serves to maintain the status quo or “business as usual” in terms of unit staffing costs, work process, and productivity. Central business executives are perfectly situated to institute and enforce a more thorough position control process. This will prevent units from blindly backfilling positions and slow growth of staffing costs.
Practice 6: Mandatory hold-open period
Unit leaders typically seek to backfill vacant positions as quickly as possible. By implementing a hold-open period, institutions can slow the reflexive backfill process. This will yield one-time salary savings, and more importantly, force units to innovate on work processes while without a staff person. This often leads leaders to realize they do not need to backfill the role at all, or should backfill the role differently to better reflect unit demands.
The first component of this practice is to establish the duration of the hold-open period. A notable alternative to establishing a specific hold-open period is to limit the frequency of vacancy review. The second component is to determine what, if any, exceptions the hold-open period should have. For some roles, leaders may want to waive the hold and consider requests immediately.
Practice 7: Vacancy-triggered role redesign
Too many institutions limit vacancy review to simply evaluating whether or not to backfill a vacant position. However, this misses a key opportunity for savings. Vacancy is by far the best time to redesign positions, as shifting or automating tasks is simpler with no incumbent staff. By requiring unit leaders to review work processes as part of filling vacant positions, institutions can often refocus positions on higher-value work or sufficiently streamline roles to allow for less expensive or part-time replacements.
The first component of Vacancy-Triggered Role Redesign is to flag and follow up on any “as-was” position requests, or requests to fill a position exactly as it was. Central administration automatically places all “as-was” position requests on hold and prompts units to redesign the role.
The second component is to equip unit leaders with a framework for evaluating the tasks associated with a vacated role. While institutions should put the onus for role redesign on unit managers, they often need some guidance and direction to arrive at the best possible result.
Practice 8: Standardized requisition form
Many institutions have a formal requisition process unit leaders follow when they need to create a new role or backfill an employee. However, it does not always capture all the necessary information and may not be used consistently across campus. As a result, vacancy review committees must rely on informal conversations and anecdotal evidence to assess a position request. By creating a standardized requisition form, institutions can more reliably gather the necessary information from unit leaders upfront to rigorously evaluate staffing requests.
The first component of building a standardized requisition form is to capture historical unit staffing trends. The second component is to require unit leaders to assess position impact on the institution’s strategic goals. This ensures leaders are thinking beyond their own unit and considering the wider value and importance of the vacant position. The third component is to compel unit leaders to consider and rule out a host of staffing alternatives before hiring a full-time employee.
The fourth component is to heavily utilize question types that limit response options. This standardizes the information and allows for more apples-to-apples comparisons by vacancy review leaders. The final component of Standardized Requisition Form is to utilize the same form to also evaluate the validity of job reclassification requests. Many unit leaders, particularly at public institutions, cannot give staff raises outside of prescribed salary bands. As a work-around, some leaders reclassify an employee in order to increase his or her salary, even though the job is not changing.
Practice 9: Vacancy savings target
Without a clear goal of what the vacancy review is expected to achieve, vacancy review leaders may struggle to develop a standard for how rigorously to evaluate position requests. Setting a concrete target helps establish a bar to measure positions against. It also ensures leaders evaluate all positions in the context of a broader institutional goal, rather than viewing each in isolation.
Vacancy Savings Target has a single component—set a specific dollar target the institution should save through vacancy review. There are a number of advantages to this approach. Most importantly, setting a vacancy target increases institutional savings, providing a concrete target for leaders to strive for.
Incenting local leaders to find sustainable labor savings
Unfortunately, many institutions observe the polar opposite of this desired behavior from their unit leaders. Too often, units spend down the balance of their budget at the end of the year to avoid losing funds or next-year budget reductions. In the context of labor spend, this problem manifests as hoarding faculty and staff lines. Many units intentionally retain unnecessary staff in order to stockpile resources to painlessly eliminate if budgets are cut.
To reverse this dynamic and spur unit leaders to actively seek labor savings throughout the year, this final section details three best practices to properly align budget and leader incentives.
Practice 10: Savings gain sharing
Too many institutions manage unit budget surpluses in ways that do not encourage units to reduce costs. “Use it or lose it” policies, where central reclaims all surplus funds, encourage excessive year-end unit spending. Conversely, carry-forward policies, where units retain all surplus funds, encourage units to save but provide no benefit to the center.
By sharing a portion of budget surpluses with the unit, institutions can incent unit leaders to find cost savings while still pulling needed resources back to the center.
The first option for effective gain sharing is to establish a fixed percentage of budget surpluses each unit will retain. Many institutions use this approach in both administrative and academic units. The key is establishing a gain sharing percentage that incentivizes unit leaders to pursue saving opportunities while still providing central administration needed resources.
The second option is to establish a unique savings target that each unit must hit before gain sharing begins. Overall, this is a more prescriptive approach, as the center can dictate the funds it needs in advance rather than waiting to see how much units save.
Practice 11: Savings-driven performance pay
Too many institutions simply set annual budgets and allow units to manage against them, with no incentive for unit leaders to find additional savings. Even institutions with unit-specific savings targets often miss an opportunity to personally motivate individual leaders to hit their goal. Linking a portion of a leader’s individual pay—either their annual merit increase or bonus—personally engages each leader in helping their unit achieve savings.
There are two options for implementing Savings-Driven Performance Pay to personally incentivize administrative unit leaders to find unit savings. The first option is to tie leader merit pay to a specific budget savings goal. The second option is to offer administrative unit leaders an end-of-year bonus payment based heavily on a unit-specific savings target. Whether institutions pursue merit pay, bonuses, or a combination of both, changing compensation plans can be both technically and politically challenging.
Practice 12: Managed competition
In Managed Competition, institutions use external vendors and the potential for outsourcing to drive internal improvement. First, institutions issue an RFP to external vendors. Second, they evaluate proposals to understand what improvements vendors would make and how staffing structures would change. Third, institutions determine if they can achieve similar cost savings by giving units an opportunity to compete against the external bid. If units can make the same or greater improvements, the function stays in-house. If not, it is outsourced.
Importantly, business executives should only utilize managed competition with units they are genuinely willing to outsource. This practice will be ineffective if units believe the potential for outsourcing is an idle threat.
There are two options for pursuing managed competition. The first option is to solicit bids from vendors to outsource an entire unit. Once business executives have gathered and evaluated the proposals, they provide unit leaders the opportunity to demonstrate they can achieve the same improvements. The second option is to solicit bids for functional subunits, rather than the unit as a whole. This allows subunits to compete on their own merits without being unfairly buoyed or dragged down by other subunits.
This resource requires EAB partnership access to view.
Access the research report
Learn how you can get access to this resource as well as hands-on support from our experts through Strategic Advisory Services.
Learn More