1.2) SUMMARY OF ASSOCIATION'S FINAL POSITION

The final position of the MUFA represents a balance between a number of competing interests. Our position reflects a desire to:

1) Preserve the basic structure of faculty remuneration employed at McMaster since the late 1960s and the role of the CP/M scheme in that structure.

2) Return faculty to the career salary profile and to restore horizontal salary equity between faculty members by removing the distortions introduced under the Social Contract.

3) Create an incentive structure which will ensure McMaster's continuation as one of the most innovative universities in Canada, and the most innovative medical/doctoral institution, as cited in the most recent Maclean's rankings.

4) Prevent McMaster's salary position from deteriorating relative to other Ontario universities, particularly at the junior ranks.

5) Maintain a fair relationship between salaries at McMaster and those of other educators, the broader public sector, and the private sector.

We propose the following.

1) That individual faculty salaries be adjusted as of April 1 1996. This is to be done by increasing faculty salaries by an amount based on the CP/M merit awards which normally would have been paid July 1 1995. The awards themselves have already been determined and faculty have been informed of the number of par units to which they were entitled (See Appendix 3, letter dated October 16, 1995); see Section 2.5 for details of CP/M Plan at McMaster). We are not asking for recovery of salary payments we would have received between July 1 1995 and March 30 1996 had the CP/M awards been made July 1 1995. We are asking that the three monthly salary payments for the period April 1 1996 to June 30 1996 reflect the higher annual salary.

2) We propose that the already calculated CP/M merit awards be converted into monetary awards on the basis of 110 par units per 100 faculty. Where CP/M merit awards have been calculated on the basis of 120 par award per 100 faculty the awards be discounted at the rate of 11/12 as was the practice during the Social Contract.

3) We also request that a 0.2% across the board salary increase be granted. This is equal to the December 1993 to December 1994 all Canada change in CPI which is the normal CPI which would have been used in negotiating the July 1995 increase. It will be implemented in the event of at least two of the other four universities with medical schools (University of Toronto, Queens, Western, Ottawa) agreeing to equal or greater ATB increases prior to July 1.

In what follows, we will show:

1) The CP/M merit payment scheme has been the core of faculty compensation at McMaster for nearly three decades.

2) The suspension of CP/M merit payments under the Social Contract has seriously disrupted salary profiles at McMaster.

3) There is no basis for negative across the board salary changes. The current financial position of the university remains adequately healthy. Faculty productivity has continued to increase both as measured by the amount of teaching and the amount and quality of research.

4) The pattern in the public education sector has been established by the school boards who have in general agreed to the restoration of teacher salary grids after the Social Contract.

5) Salary comparisons suggest that against a number of groups we have slipped and that the problem is particularly acute for junior faculty.

2.3) HISTORY OF RECENT SALARY NEGOTIATIONS

In March of 1991, MUFA and the administration reached a three-year agreement for the years 1991, 1992 and 1993 (see Appendix 24). It provided CP/M payments in each of the three years based on 120 par units per 100 faculty members. It also provided for ATB payments equal to the previous year's December to December CPI in each year. Only the first year of this agreement was implemented before the administration exercised its right to reopen under agreed to conditions. The ATB increase of 3.8% for 1992 , based on the formula in the 1991 agreement, was reduced to 2.0% payable in 1992. The remaining 1.8% was deferred to 1993/94 where after ATB increases equivalent to 2.75% were to be made. (For other recent settlements see Appendix 4.)

Our willingness to defer ATB increases was to prove very costly. As a result of the Social Contract legislation we were forced to suspend the 1993 ATB increases, including the deferred payments from 1992. The agreed to 2.75% ATB increase for 1993 was reduced to 0%. Salaries were reduced by .5% in July of 1994 and were frozen in July of 1995. Had ATB increases followed the historical trend formula of equalling at least the previous year's December to December CPI we would have received pay increases of 4.1% over the three years rather than a .5% reduction.

During the Social Contract there were also reductions in the number of par units used to calculate CP/M payments. Over the three-year period, we received 220 par units rather than the 360 which we would have received had agreements continued to follow the pattern established in 1989 when the plan was revised. Since 1989, 120 par units have been provided per year. See Table 1 for a summary of recent ATB and CP/M payments. (See Section 2.5 for details on the operation of the CP/M plan at McMaster.) (See Appendix 1 for details of the McMaster Social Contract).

TABLE 1:  HISTORY OF CP/M AND ATB PAYMENTS AT McMASTER 1991-95

	INFLATION   		ACTUAL ATB 	CP/M

	RATE FOR   		PAID AT  	PAID AT

	ATB CALCULATION 	McMASTER  	McMASTER

						(par units per

						100 Faculty)
1991     5.0%      		5.0%    		120
1992     3.8%      		2.0%    		120
1993     2.1%      		0.0%    		110
1994     1.7%    		-0.5%   		110
1995     0.2%      		0.0%      		 0

2.4) THE IMPASSE AT THE NEGOTIATING TABLE

We are submitting the proposals outlined above for arbitration only after an impasse was reached at the bargaining table. A negotiated agreement was not possible despite extensive discussions at the Joint Committee (see Appendix 25 for a description of how negotiations are conducted at McMaster). This was true even though both the Faculty Association and the administration agreed that rewarding meritorious faculty was a priority.

The administration insisted that faculty finance their own CP/M scheme through ATB salary reductions. Our position was that except during the Social Contract period, faculty had never been asked to finance the CP/M merit scheme. We also argued that self-financing of grid payments through negative ATB was not the prevalent trend at other universities nor within jurisdictions such as the secondary schools that also reward progress through the ranks. We also argued that there was no grounds for ATB reductions given increasing faculty workloads and the increasing stature of McMaster as a teaching and research centre. Other jurisdictions have responded to financial constraints by adjusting teacher/faculty complement, a factor which we do not directly control through our bargaining process at McMaster.

It is worth noting that the administration has been reducing faculty complement since 1991 and is currently in discussions with representatives of the Faculty Association over how to use the surplus in the pension plan to finance their plans for reduction in faculty complement through selective buy outs. Between 1990/91 and 1993/94 the number of full time faculty outside of the Faculty of Health Sciences had fallen from 620.3 to 593.8<1> (See Appendix 6). During this same period the number of full time equivalent graduate students outside of the Faculty of Health Sciences had increased from 1,461.8 to 1,502.6. FTE undergraduate enrolment increases from 11,467 to 12,246. Although more recent data are not available there is every reason to believe that the trend towards a smaller faculty complement has continued.

The administration argued that they did not have sufficient information about government funding to reach a settlement. We argued this was irrelevant for four reasons. First, the transitional arrangements are to resolve issues generated by the Social Contract itself rather than problems created by future funding announcements. The objective is to minimize the extent to which the adverse effects of the Social Contract extend into the post-Social Contract period. The objective of "...potentially limiting the disparities created by the ACT to the actual receipt of compensation increases during the period of the Social Contract freeze is in effect" played an important role in the decision of Mitchnick et al. in the decision between SEIU and the participating hospitals (see Appendix 19). Second, the transitional arrangements cover only three months and the issues on the table did not represent large sums of money and could be financed from current revenue. Third, the normal round of negotiations were scheduled for the early spring and any potential difficulties created by changes in the funding formula should be dealt with at this time. Fourth, the actual cost of the CP/M scheme in the short-run after recoveries due to retiring faculty is significantly less than the total cost of the merit award payments themselves. In the long run the plan is self-financing.

In the spring of 1995, as part of the final year of the Social Contract, the faculty had already clearly rejected funding the CP/M plan through equivalent ATB reductions. Our unwillingness to accept restoration of CP/M payments through equivalent salary reductions achieved via ATB decreases was based in part on the sacrifices faculty had already made. We had already accepted significant reductions in real earnings since the administration reopened our 1991 agreement. We lost wage increases equivalent to 2.75% as a result of the Social Contract and we accepted a .5% salary reduction to fund a portion of the CP/M plan in 1994. A case could be made that faculty are entitled to the 1.8% ATB deferred from 1992, plus 4.1% ATB which is the December 1991-December 1994 all Canada CPI traditionally used in McMaster salary negotiations, plus .5% ATB to compensate for the .5% ATB reductions which was applied July 1 1994. At this point, we are not pursuing this larger ATB increase and prefer that the emphasis be placed on restoring horizontal equity between faculty members by moving faculty back onto the salary profile.

Before we describe the details of the CP/M plan and its central role in shaping faculty compensation at McMaster, it is worth discussing the serious inconsistency in the administration's policy at the bargaining table of recognizing the importance of rewarding merit but putting a low overall priority on funding merit payments. If we are to reward merit and use financial rewards as a strategy for encouraging innovation and excellence, then financial payments must be paid to meritorious faculty. The strategy will not work if the principle of making financial rewards is only given lip service. To make the rewarding of merit a high priority and to give the merit payment system a central role in how the University manages itself as an academic enterprise, while at the same time making the funding of merit awards a low priority is inconsistent. To suggest that innovation and excellence can be encouraged by asking faculty to accept across the board salary reductions to fund a merit pool is illogical and damaging to the University as an academic enterprise. The conversion of our CP/M plan from a plan for rewarding merit and encouraging innovation, its original objective, into a plan which redistributes existing resources among faculty will have serious negative consequences for the University as an academic enterprise.

During negotiation we consistently argued, and continue to believe, that the success of the next round of negotiations depends in part on resolving some of the serious inequities created by the Social Contract. By not allowing faculty to move along the salary profile in July of 1995 artificial salary gaps have been created. For instance under normal operation of the CP/M plan, a meritorious junior faculty member granted an above average award in July of 1995 would have expected an increase of $2,641. An equally meritorious senior faculty member awarded the same amount of merit in July of 1995 would have expected a salary increase of $660. The effect of non-payment of merit awards in July of 1995 has created a salary gap of $1,981. In the past, the administration has placed an emphasis on removing salary anomalies. To deny merit awards now would simply create new types of anomalies and generate serious horizontal inequities between faculty members. Our proposals are addressed mainly towards resolving these horizontal inequities.

2.5) THE CP/M SCHEME AS THE CORE OF McMASTER FACULTY

COMPENSATION SCHEME

The Faculty Association fully supports statements in the recent "Mission/Vision" report encouraged by our recently appointed President, Peter George. We agree that our University should be committed to "excellence in teaching, research and scholarship" (See Appendix 7, McMaster University, Directions, November 17 1995, p. 2). We also agree that an important strategy to achieve this goal is to "reward those who develop strategies to connect scholarship and teaching" (Directions, p. 3). The Faculty Association fully supports the conclusion that a key way of achieving our overall objectives is "Rewarding Accomplishment". We agree that it is important that "even in an era of reduced government funding, we must continue to identify and reward those whose work achieves new heights of research and scholarship" (Directions, p. 4). The strategy of rewarding merit, explicit in the Mission/Vision statement, reflects the principles upon which the existing McMaster Career Progress/Merit Plan was created. This strategy points to the important role rewarding merit through the CP/M scheme has played in making McMaster the most innovative university in Canada and the important role it will play in the future.

The CP/M plan is a freely negotiated agreement which regulates faculty compensation. The principle of making annual salary awards on the basis of merit can be documented at least back to the 1960s. As McMaster grew in size it found it could no longer make decisions on the basis that everyone knew everyone else. More formalized arrangements for determining salary began to emerge in the late 1960s which enshrined the principles of merit salary and a non-linear salary grid. In 1969, salary letters stated, "The salary increases have allowed for the higher cost of living but the major emphasis of the salary review committee has been on each faculty member's contribution to teach and research, and service to the University, his profession and the community." (See Appendix 3, Salary letter dated May 7 1969) As early as 1971 the principle of a non-linear salary profile was being formalized. In that year the salary letters noted that merit and progression through the ranks, ". . . has been applied in such a way as to provide a somewhat larger percentage increase to junior faculty and a correspondingly smaller percentage increase for those at the higher salary level." (See Appendix 3, Salary letter dated March 30 1971)

During the 1970s more formalized means of awarding merit were introduced. In 1976, a joint administration/Faculty Association committee proposed that a non-linear salary profile be defined for McMaster and that a system be formalized to allow people to progress along this salary profile at different rates according to merit assessments (see Appendix 23). In the next year the basic principles of the current CP/M plan, non-linear salary profiles and differential progress along the salary scale based on merit were put in place. This arrangement was approved by the Joint Committee in 1989. The most recent revision to the plan took place in 1989 but retained the basic features of a non-linear profile and differential progress based on merit (see Appendix 5). In 1989 it was stated that a basic assumption of the plan was that, "A faculty member is entitled to expect to make progress along an established salary route which will appropriately reflect competence and contributions to the University during the term of service." (See Appendix 5, McMaster University Faculty Career Progress/Merit Plan, March 13 1989, page 1).

For any given year the salary profile represents a relationship between the salary entitlements of faculty at different points in their career. Of critical importance to the current position of the Faculty Association, is that the salary profile is non- linear and that progress along the profile depends on merit assessments. Under the current plan, during a normal career, faculty will progress through four distinct ranges with merit awards declining in value as one moves along the profile. The value of CP/M awards is four times greater for faculty at the beginning of their careers compared with the end of their careers. Merit awards can vary from 0 par awards to 2.5 par awards. Faculty who fulfill their teaching, research and service responsibilities are expected to retire at the end of a 35-year career with a salary equal to 2.5 that of the floor salary of an assistant professor.

The basis for calculating awards is the par merit award where "par connotes satisfactory performance and implies competent discharge of the duties normally associated with a faculty appointment at McMaster." The system was designed with a minimum of 110 par awards per 100 faculty on the assumption that average performance at McMaster would be more than "satisfactory." (See Appendix 5, March 13 1989 description of the Faculty CP/M Plan) Between the revision of the plan in 1989 and the disruptions of the Social Contract, the Faculty Association and the administration had agreed to fund the plan at the rate of 120 par units per 100 faculty members.

The Table below provides the basic information on the ranges for CP/M merit awards, and the value of awards in each salary range as of July 1 1995.

TABLE 2: CP/M SCHEME (As of July 1 1995)

SALARY RANGES 	NUMBER OF FACULTY	VALUE OF PAR AWARD


$39,961.00-$72,309.90 	262			$2,155.26
$72,309.91-$88,474.35 	224			$1,616.45
$88,474.36-$93,862.50 	155			$1,077.63
& gt;$93,862.51	121			$538.81

The total salary of the 762 members of the faculty CP/M plan for the year beginning July 1 1995 was $59,854,338.

SOURCE: These data were supplied by the administration and is based on actual faculty complement as of July 1 1995.

As has been recognized in other jurisdictions such as the secondary school teachers who also use a career progress salary profile, a temporary salary freeze such as that imposed under the Social Contract, creates serious horizontal equity problems. The steeper the salary profile, the more serious the inequity problems. Given that the faculty have the steepest salary profile on campus, it is not surprising that the Faculty Association has been the most vocal in demanding restoration of merit awards. The financial impact of a freeze is the greatest for those at or near the bottom of the salary profile since the largest potential salary increases tend to come early in one's career. This is an issue we will return to below.

The McMaster CP/M scheme not only recognizes progress through the ranks for faculty, but also gives formal recognition to the implicit employment contract between faculty and the University. This contract results in faculty beginning their careers late in life after an extensive training period, and at a relatively modest salary given their age and investment in human capital. In 1994/95 McMaster did not employ any assistant professors below age 30 (Table 1.1.1 OCUFA Data, see Appendix 8).<2> In 1994/95, the 21 faculty entering McMaster at the entry rank of assistant professor, all of whom were at least 30 years old, were paid on average $48,518 (Table 1.6 OCUFA Data, see Appendix 8). By comparison, a Group 4 secondary teacher in Hamilton beginning his or her teaching career within a couple of years of graduating with an honours BA would be five years into his or her career and would not only have five years of earnings and pension credits accumulated by age 30, but would be earning in excess of $50,000. A skilled trades worker at the CAMI factory in Ingersoll would earn a base salary of $53,642 for the year beginning September 1995. Working a modest amount of overtime, averaging 4 hours a week, would increase this person's earnings to $61,688 (See CAMI agreement, Appendix 9).

To compensate for both the late age at which most faculty complete their formal education, and the low initial salary, faculty who perform at the expected high level in terms of teaching, research, and service, progress through the ranks and receive annual CP/M awards. By mid- career, faculty end up with a salary which in many ways compares favorably with incomes in other careers. One should not confuse the average earnings of an aging faculty with the realities of faculty career salary earnings. Faculty receive little if any income prior to age 30, relatively low incomes for a further 10 years, and have comparatively attractive salaries only towards the end of their career. Discounted at the appropriate rate of interest, this particular stream of income compares unfavorably with someone who begins earning earlier in his/her career, reaches a peak earnings level earlier on, but perhaps never attains the salary of a graying professor. Had faculty known that the implicit promise of a career salary profile was not going to be honoured in the long run, they may very well have declined the low initial starting salaries.

From the perspective of the University, this implicit contract provides an incentive for faculty to maintain high levels of performance and provides the administration with an effective mechanism for managing the academic enterprise. Faculty move along the salary profile based on merit assessments. One will move along the profile more rapidly if one is assessed as more meritorious than the average faculty member. As one progresses through the profile, the value of a par merit award declines. This is a system which bears significant resemblance to the Japanese individual age/merit pay schemes which many critics claim is central to the success of Japanese firms over the last two decades.

There continues to be controversy between the Faculty Association and the administration regarding the costing of CP/M payments. It is the contention of the Faculty Association that the merit scheme was always meant to be self-financing. The difference between the starting salary of a new faculty member and that of a retiring faculty member is sufficient to fund CP/M awards of current faculty. Such a model was explicitly used by M.Hedden, Vice President (Administration), early in the life of the current scheme. In a letter addressed to J. Burbidge, the Faculty Association salary chair, it was predicted that the CP/M scheme would become self- funding in the early 1990s and that by the late 1990s the cost of CP/M payments would be substantially less than the difference between the salaries of retiring faculty and current floor salaries (See Hedden memo dated June 26 1978 in Appendix 3.) It was implicit in a letter from Leslie King, Vice President (Academic), to the president of the Faculty Association in January of 1983 which addressed the issue of "Retirees and Cost of PTR" (See Letter dated January 12 1983 in Appendix 3). In 1983 the same sort of calculations found in the Hedden letter were again made, adjusted for shifts in the salary profile but still predicting break even by 1996/97 once retirement savings were factored in.(See Logic of the Faculty Career Progress Model, January 1983 in Appendix 3) The principle that CP/M payments were to be financed through the partial recovery of the salaries of retiring faculty was explicitly accepted during a previous arbitration according to Selector Kennedy. At page 3 of Selector Kennedy's award (See Appendix 10), he notes the parties have different approaches to the costing of CP/M. However, he adds: "At the hearing the parties agreed that while the gross increase based on existing faculty is 2.2%, the actual cost in reality would be approximately 1%." That is, there was agreement that there were offsetting savings and that the annual cost of CP/M was not simply the cost of current merit awards.

For a number of reasons current CP/M payments are not fully self-funding in the short run using the same assumptions as those found in previous models of costs. There are a number of reasons for this. A number of faculty have taken early retirement in the recent past and these savings were used for other purposes such as faculty renewal. These early retirements also had the effect of reducing the pool of current retirees. Nonetheless, the current potential savings from the difference between starting and retiring salaries provides a significant sum of money as shown in Table 3 below.

TABLE 3
Costs of CP/M Scheme at 110 par Units per 100 Faculty and Savings
Available from Retirements and Resignations
COST OF CP/M
Cost of CP/M if paid for the whole year, 1995-96	$1,274,489
Cost of CP/M for the 3 months requested 		$  318,622
1995-96 SALARY SAVINGS WITH REPLACEMENT
Salary Savings from retirements    			$  499,192
Salary Savings from resignations   		$  210,250
Total Savings with Replacements   		$  709,442
1995-96 SALARY SAVINGS WITHOUT REPLACEMENT
Salary Savings from retirements    			$1,099,192
Salary Savings from resignations   		$  710,250
Total Savings without Replacements   		$1,809,442

The total cost of CP/M payments as proposed by the Faculty Association based on 110 par units per 100 faculty and assuming all faculty receive 1.1 par units is $1,274,489. For the three months remaining in this contract year, the cost is only 1/4 of the above or $318,622. According to data supplied by the administration, 12 faculty retired June 30 1995, from whom the savings for 1995/96 awards would be drawn. Their total salary was approximately $1,099,192. This sum would virtually cover annual merit award costs if no replacements were made. If we assumed full replacement at a salary of $50,000 which is over $10,000 above the floor salary of an assistant professor, the net savings to the University would be, $499,192. As well 10 faculty resigned during the year. Their total salary, and hence potential savings, was approximately $710,250. If they were replaced at $50,000 each this would produce a further savings of $210,250. The total contribution from retiring and resigning faculty with no replacement would be $1,809,442. With replacement the savings would be at least $499,192 and arguably $709,442. According to data supplied by the administration we anticipate at least the same number of retirements as of July 1 1996.

The annual cost of the CP/M plan could be fully funded entirely from current savings due to retirements and attrition. Even assuming that all faculty are replaced, which is not happening, the actual cost to the University is significantly less than the $1,274,489 calculated above. Assuming full replacement at $50,000 the cost would be between $565,047 and $775,297. Our proposal only requires the University to pay 1/4 of the annual cost of the CP/M plan and make monthly payments only for the period April 1996 to June 1996.

2.6) THE SOCIAL CONTRACT THE CP/M SCHEME AND THE QUESTION OF HORIZONTAL EQUITY

In the case of McMaster, the Social Contract process did lead to signed agreements. However, these should not be viewed as voluntary agreements in any sense of that term nor can they be viewed as the product of free collective bargaining. The Social Contract distorted the normal process of negotiating in a number of ways including:

1) Negotiations were conducted in a context where the outcome of non-agreement was externally determined. Fail-safe would have imposed financial penalties on the University, as well as freezing both ATB and CP/M salary payments Given McMaster's long tradition of CP/M merit payments, a non-linear salary profile where junior faculty normally enjoy larger merit awards than senior faculty, and differential progress along the salary profile based on merit, the freezing of CP/M payments would have had serious implications.

2) Negotiations were conducted with externally set time allowances. They were compressed into a brief period of time during the summer. Negotiations at McMaster have traditionally occurred between December and March.

3) The Social Contract suspended the existing mechanisms for reaching agreements at McMaster including the agreed to right to resolve impasses at final offer selection.

4) Due to the government's handling of the Social Contract, negotiations took place in a confused and continuously changing context.

5) The Social Contract set both financial targets and introduced arbitrary rules as to how those targets could be satisfied.

As a result of these distortions to the bargaining process, flawed agreements were reached. In the case of McMaster, as was the case in many parts of the public sector using a career salary profile payment scheme, the Social Contract created serious inequities between employees at different stages of their careers. Given the non-linear salary profile at McMaster, the non-payment of career progress/merit awards in July of 1995 penalized junior faculty far more than senior faculty. For instance a junior faculty member earning $50,000 and denied an average award of 1.2 par units would have lost $2,536 dollars in base salary or over 5%. A senior faculty member earning $91,000, and also awarded 1.2 par units would have lost $634 or less than 1% of salary. Over a career, the burden carried by junior faculty could amount to tens of thousands of dollars. The Faculty Association feels that correction of this horizontal inequity must be a priority in the transitional agreement.

2.7) HORIZONTAL EQUITY AND TRANSITIONAL AGREEMENTS

IN OTHER SECTORS

Jurisdictions such as secondary school teachers, who also have a salary grid as part of their compensation package, have negotiated with the school boards to restore increment payments. A very clear pattern has emerged and it would be surprising if it did not become the norm in the sector. In the majority of cases where information is available regarding settlements, teachers have returned to the appropriate point on the career salary grid and have thereby restored horizontal equity between teachers. The most recent documentation from the Education Relations Commission as of September 12 1995 shows that 49 agreements were based on a return to the grid and only 5 were not. Nearly all of the major urban centers in Ontario, including Toronto, Hamilton, Windsor, and London, either continued to make increment payments during the Social Contract or have agreed to restoration of these payments in transitional agreements. (See Appendix 11) An internal document produce by the Ontario Secondary School Teachers Federation which was made available to MUFA by Sue Ramenda from the OSSTF office in Toronto and will be supplied by them if requested, shows that as of October 23 1995, 28 of the 31 secondary school boards who have reported the outcome of their transitional agreements have agreed to full restoration of grid payments. All the major centres such as Metro Toronto, Hamilton, Wentworth, Halton, London and Windsor had agreed to full restoration. The memorandum of agreement between Halton Board of Education and the Halton Ontario Secondary School District 9 is just one example of such an agreement. Clause 1 of this agreement reads:

All teachers currently on the grid will be restored to their proper grid position on September 1 1996 as if the Social Contract had not occurred. In addition, a lump sum payment at the rate of $300.00 each Social Contract year to a maximum of $900.00 to be paid on the second pay deposit in September 1996 to teachers who had increments withheld (See, Appendix 12, Memorandum of Agreement, July 11 1995).

In Halton, and typical of most of the agreements in this sector, the return of teachers to the grid was to be financed through a series of measures including reduction in the number of teachers with their salaries credited to the Increment fund, reductions in administrative staff and economies (but not reductions) in the delivery of benefits.

We have been unable to find any case of a school board demanding across the board salary reductions to fund increment payments and the return to the grid. Quite the contrary, of the 48 secondary school agreements for which we have information, 15 negotiated across the board salary increases during the Social Contract.

We have examined extensively the pattern being set by settlements in the Ontario school boards. It is not possible to refer to a similar pattern in the university sector as McMaster is the first major university to negotiate a transitional agreement. From our discussion with associations and unions at the other universities, restoration of profile payments is likely to be a key issue in upcoming negotiations.

2.8) McMASTER'S SALARY LEVELS RELATIVE TO THOSE

OF OTHER UNIVERSITIES AND COMMUNITY COLLEGES

A further reason for requesting the restoration of merit awards which should have been made in July of 1995, is our observation that over the last decade relative salary levels at McMaster compared with other Ontario universities have declined. The decline is particularly noticeable at the junior level which would be further exacerbated by the failure to award CP/M for 1995/96. The claim by the administration, made as recently as March of 1992,<3> that McMaster faculty salaries rank 2nd or 3rd among Ontario's comparable universities, does not reflect current reality.

The administration has often used the simple measure of average salary for all faculty at McMaster as an indicator of our salary ranking. Such a measure is seriously flawed because it does not adjust for either different age compositions of faculty or differences in the academic qualifications of faculty. As Table 4 shows, the age composition of faculty differs markedly across Ontario. McMaster has significantly fewer faculty under the age of 35, and more faculty above the age of 45 than institutions such as Waterloo or Western.

TABLE 4: PERCENTAGE DISTRIBUTION OF FACULTY BY AGE 1994/94 (ALL RANKS)


		ALL ONTARIO	McM	TORONTO		WATERLOO	WESTERN
<35     	6.6 		3.7  	7.4                  8.9	7.1
35-45    	25.4		29.1 	22.7                26.8	26.1
45-55		38.6 		37.6 	37.7                33.8	32.5
a>55 		29.4		29.6 	32.1                30.5	9.3

Source: Table 1.1.1 Statistics Canada data for 1994/95 provided to OCUFA data (see Appendix 8)

The percentage of faculty with PhDs also varies across institutions as shown in Table 5 on the next page. McMaster ranked third in terms of the number of full-time faculty with PhDs.

To get a more accurate picture of how salaries compare across universities, we use Statistics Canada salary data controlling for years since highest degree, which at McMaster tends to be a PhD. We present the data in a way that we believe more accurately reflects an average academic career. For most faculty their career does not begin at a certain age, but rather at the point where they complete their PhDs. Given the nature of PhD research this age of entry can vary significantly. Faculty normally enter the job market around the same time they are completing their PhD. Faculty would then progress through the ranks spending the first 6 or 7 years as assistant professors, the next 7 to 10 years as associates, and finally being promoted to the rank of full professor 15 to 20 years after completing their PhD. The data supplied to us from Statistics Canada do not perfectly mirror such a career. We present data for a typical professor who spends the first 4 to 9 years as an assistant, the next 10 to 15 years as an associate and becomes a full professor after 20 years.

TABLE 5

PERCENTAGE OF FULL-TIME FACULTY WITH A PhD DEGREE

(ONTARIO UNIVERSITIES)

Source: "Faculty", Maclean's, Volume 108, Number 47 (November 20, 1995), p. 36.

Organizing the data in this way has a further advantage that it tends to reflect more accurately a "normal progress through the ranks". Those faculty who are promoted either faster than average or slower than average tend to be in cells not reported in Tables 6-9. The cells we have reported below represent the majority of faculty in most universities. For example at McMaster, 73% of assistant professors are 0-9 years from their highest degree, 76% of associate professors are 5-19 years from their highest degree, and 74% of full professors are 20 or more years from their highest degree. (Table 1.3.1 OCUFA manual, see Appendix 13)

Tables 6 and 7 (on pp 25 & 26 below) provides details on relative faculty salaries by rank and years since highest degree compared for the period 1991-1995. These tables confirm that there is a significant gap between salaries at McMaster and those at the best paid universities in Ontario. In 1994/95 the gap was between $3,000 and $9,000 and represented between 4.1% and 9.8% of salary. In percentage terms, the gap has widened significantly at the assistant and associate level since the administration reopened our agreement in the spring of 1992.

Table 8 (see p. 27 below) gives details on the gap between the University of Toronto and McMaster over the last ten years. This table gives a different view of relative salary shifts in that it maintains a constant comparator across all ranks and years since highest degree. UofT was selected because it appears most often as one of the top three institutions in the 1994/95 comparisons above. The table suggests that not only are faculty at UofT better paid, but, more importantly, the percentage gap between the two institutions has widened. This is particularly the case at the junior level where McMaster's 1.4% advantage relative to the University of Toronto has become more than a 6% deficit. While there may be reasons why average salaries are higher at Toronto than McMaster, we can thing of no compelling reason why the difference should have increased over the last decade.

Table 9 (see p. 28) shows that once one corrects for academic rank and for years of award since highest degree, McMaster is currently nowhere near the top two or three in terms of faculty remuneration. Long-run trends can be seen by comparing the rankings in the mid 1980s with those in the mid 1990s. While there is variance from year to year, it is clear that McMaster's relative standing has slipped badly at the junior ranks. In 1994, McMaster was dead last in terms of salaries paid to assistant professors 0-4 years beyond their highest degree. At the associate and full professor ranks, rankings have remained about the same.

TABLE 6

RANKING OF McMASTER SALARIES BASED ON POSITION AND YEARS SINCE AWARD OF HIGHEST DEGREE,

UNIVERSITY LEADERS, SALARY DIFFERENTIAL BETWEEN LEADER AND McMASTER, AND McMASTER AVERAGE SALARY

ASSISTANT A S S O C I A T E FULL PROFESSOR

Source: Statistics Canada data provided annually to the Ontario Confederation of University Faculty Associations (medical and dental faculty excluded).

TABLE 7

RANKING OF McMASTER SALARIES BASED ON POSITION AND YEARS SINCE AWARD OF HIGHEST DEGREE,

UNIVERSITY LEADERS, SALARY DIFFERENTIAL BETWEEN LEADER AND McMASTER, AND McMASTER AVERAGE SALARY

FOR 1992-1993 AND 1991-1992

ASSISTANT A S S O C I A T E FULL PROFESSOR

Source: Statistics Canada data provided annually to the Ontario Confederation of University Faculty Associations (medical and dental faculty excluded).

TABLE 8

COMPARISON OF McMASTER AND TORONTO SALARIES BASED ON RANK AND YEARS SINCE AWARD

OF HIGHEST DEGREE, 1984-85 VERSUS 1994-95

ASSISTANT A S S O C I A T E FULL PROFESSOR

TABLE 9

RANKING OF McMASTER AVERAGE SALARIES BASED ON POSITION

AND YEARS SINCE AWARD OF HIGHEST DEGREE

(All rankings are out of a total of 15 Ontario institutions listed below.)

ASSISTANT A S S O C I A T E P R O F E S S O R

0-4 5-9 5-9 10-14 15-19 20-24 25-29 30+

1984 4 3 8 4 4 7 7 7

1985 3 4 9 5 5 8 10 4

1986 2 6 6 4 4 6 10 6

1990 4 8 6 4 3 7 6 10

1991 9 7 3 5 3 6 6 10

1992 3 6 1 3 7 6 7 9

1993 7 6 4 4 3 7 8 11

1994 15 6 6 3 3 5 9 11

1995 8 7 5 3 4 4 6 9

Source: Statistics Canada, Salary Analysis of Full time Teaching Staff at Canadian Universities (medical and dental faculty excluded) (See Appendix 13).

Includes: Brock, Carleton Guelph, Lakehead, Laurentian, McMaster, Ottawa, Queens, Toronto, Trent, Waterloo, Western, W.L.U., Windsor, York.

Together, the tables in this section point to a deterioration in faculty salaries at McMaster over the last decade and especially since the reopening of our agreement in 1992. The deterioration is especially acute at the more junior levels. To deny paying CP/M merit awards would further disadvantage junior faculty given that the McMaster CP/M plan provides for significantly larger merit awards for faculty at the beginning of their careers.

It cannot be argued that the lower salary costs at McMaster are offset by higher benefit costs. Using data supplied by the Council of Ontario Universities, McMaster benefits represented 8.3% of all salaries and wages for the year ending April 30 1994. This placed McMaster 13th out of 21 Ontario university institutions. (Appendix 14: Table 3A, page 38 COU data) The University's audited financial statements suggest a similar level of benefit payments. Between 1985 and 1995 benefits represented between 7.3% and 8.8% of salaries and wages. There was a substantial increase in 1991 and 1992 likely reflecting the unfunded liability of shifting from a best 60 to best 48 months basis for calculating pensions in the 1991 agreement. Since its peak in 1993, the cost of benefits as a percentage of salaries and wages has actually declined from 8.8% to 7.6%. (Appendix 15, Audited Financial Statements.)

Comparative salary data for universities in other provinces can be somewhat misleading as it is impossible to control for the different quality of university faculties, different age profiles, and differences in provincial policy. We do note that in British Columbia, which is perhaps the most similar to Ontario, the three major universities have either signed agreements for the current academic year providing for both CP/M and ATB increases or are in the process of arbitrating a dispute which will provide CP/M and an unknown but positive ATB. (See Appendix 16 for agreement details).

At the Ontario community colleges, the pattern to be established in transitional agreements is clouded by the fact that the colleges went into fail safe during the Social Contract. It appears that this sector will be headed to court shortly after April 1 for an interpretation of the validity of the contracts that were in force upon entry into the Social Contract. Until this issue is resolved it is meaningless to discuss the pattern of settlements in this sector.

2.9) SALARIES AT McMASTER

COMPARED WITH THE PUBLIC AND PRIVATE SECTOR

We have already made extensive reference to trends in salaries at the school boards where a number of boards have granted wage increases and increments during the Social Contract and have in general moved to restore increment payments withheld during the Social Contract in transition agreements. As outlined below in our review of recent arbitral decisions, there is a growing recognition of the importance of private sector settlements for determining rates of compensation in the public sector. (In particular see Appendix 19, Mitchnicks decision below.) As can be seen in Table 10 p. 32 below), over the last five years, compensation rates in the private sector have been growing more rapidly than in the public sector in general and compared with McMaster in particular. Between 1990 and 1994, total base wages increased by 16.7% in the public sector, 16.6% in the private sector and 14% at McMaster. Over the longer period of 1985 to 1994, base wages increased 51.2% in the public sector, 48.4% in the private sector and 46.7% at McMaster.

2.10) WHAT ARE THE RELEVANT ARBITRAL CRITERIA?

As in the past, we anticipate the administration will raise the question of ability to pay. We do not believe this criterion should be accorded much weight. Just as arbitrators have considered comparability an important criterion even in poor economic times, they have established that there is little rationale for using ability to pay as a criterion in arbitration. This was also the case when the Public Sector Prices and Compensation Act required arbitrators to consider ability to pay. At that time, a number of prominent arbitrators held that ability to pay in light of provincial fiscal policy was not a paramount or overriding consideration in determining pay disputes. In support of our position, Appendix 17 contains extracts from numerous arbitration awards on ability to pay. Furthermore, and as outlined below, Selector Shime's award at McMaster in 1991 expressed doubts about the utility of ability to pay as an arbitral criterion.

In recent years, employers have revived the ability to pay argument citing the economic climate in general and government efforts to control deficits in particular. Note that the emphasis tends to be on the "economic climate" rather than ability to pay. For example, McMaster University previously argued that in the 1991 fact finding report covering Toronto teachers, fact finder Marcotte distinguished "the ability to pay issue today from the 'handmaidens of government' characteristic" found in Shime's McMaster award. A review of the fact finder's non binding report (Appendix 18) suggests there is little that is new in the report. Marcotte stated he agreed that ability to pay essentially reflects willingness to pay in the public sector - the conventional view among arbitrators.

During the course of the Social Contract, arbitrators have been asked to consider adjustments in compensation. The health care sector is instructive because it has experienced the greatest amount of interest arbitration activity. For example, in the central award covering 42 Participating Hospitals and SEIU (the Mitchnick award of February 21 1995, which appears as Appendix 19), the board outlined what it considered the appropriate comparators (at pages 12 and 13).

TABLE 10

* Major settlements are those involving bargaining units of 500 or more employees.

SOURCE: Labour Canada, Bureau of Labour Information, "Major Wage Settlements" (1985-1995).

... the continuing economic conditions of the province cannot be ignored... These are, unavoidably, modest times we live in... As for wage settlements during this period, the public-sector figures are of no assistance, distorted as they are by the statutory freeze, which again, in the Government's words, is not to "adversely affect' LICO employees. However, as a measure of economic conditions generally, it seems to us that settlements in the private sector can be looked to as a guide - particularly given the constant admonition of public-sector employers to interest boards over the years to "look at what's happening in the `real world'. That is what arbitrator Teplitsky recently did when he replicated an average private-sector settlement rate of '1% (approx.)' in his central arbitration award for SEIU and the 46 Participating Nursing Homes, in granting an increase of 1% for calendar year 1994.

In effect, the board held private sector settlements provided the best measure of general wage trends and awarded adjustments in compensation. The Mitchnick award was replicated in a voluntary settlement in a central hospital round of bargaining between CUPE and 72 Participating Hospitals on June 22, 1995.

In a unanimous arbitration board decision involving Belleville General Hospital and SEIU, October 5, 1995 (Appendix 20), the arbitration board awarded improvements in compensation after taking into account "the prevailing economic circumstances in the province of Ontario to which the employer made reference" (at page 10).

There have been three arbitrations decided by Selectors at McMaster and a review of the awards provides an indication of which criteria are important. The first arbitration was in 1987 Appendix 10). Selector Kennedy was asked to decide whether an ATB increase of 2.5% reflecting catch-up should be awarded. The administration's final offer contained no catch-up. In accepting that there had been some erosion in faculty salaries, he awarded the final position of the Association. At page 12, Selector Kennedy observed:

The indicators are, however, not only that erosion exists, but that its magnitude to some extent at least will exceed the amount of the claim that is being asserted at this time....I do not consider that it is appropriate to look at faculty salaries as being the residual component in the budget, and I think the materials are adequate to establish that the time has come that some restoration of the economic position of the faculty is justified. I consider, therefore, that an important criterion in determining which offer to select is the existence of a recognition in principle of the "catch-up" component, and this requirement is not met by the university offer.

In rejecting the administration's ability to pay argument, he stated (at page 13): "in a case of ability to pay, there is a heavy onus upon the party pleading poverty to establish that fact."

The second arbitration took place in 1989 and the matter was heard by Selector Kennedy (Appendix 21). There were two issues in dispute: a further ATB increase providing for catch-up of 2% and a pension anomaly. The administration was offering no catch-up and no change in pension benefits. In deciding the matter in favour of the administration, Selector Kennedy once again acknowledged the University's funding constraints and the importance of balancing the interests of the parties. At page 15, he characterized the administration's offer as "on the low side", but felt the Association's claim in combination (catch-up and pension benefits) exceeded "what would be an appropriate increase in total compensation".

The third arbitration took place in 1991 before Selector Shime. The difference between the parties was an additional 1.1% ATB increase concerning catch-up. Selector Shime accepted the Association's claim for catch-up noting that McMaster settlements had not kept pace with settlements at other universities. The award is significant for several reasons. First, Selector Shime repeated his belief that there is little economic rationale for using ability to pay as a criterion in arbitration. Second, he recognized the paramount importance of comparability at page 8 of the award:

Thus, for example, if I were faced with data showing that the salary scale for Assistant Professors at McMaster was less than that of other Universities in Ontario, I would have no hesitation in increasing the amount to achieve the same standard for McMaster regardless of the University's financial position.

At page 9, he added: "If arbitrator/selectors were to consider the funding level of Universities for the purpose of salary determination, they would in effect become handmaidens of the Government." Third, Selector Shime concluded the most appropriate comparisons should be based on total compensation. In his view, the criteria should be ranked in order as follows:

1. other Ontario universities
2. universities outside Ontario
3. high schools and community colleges
4. other professionals, e.g., lawyers and doctors
5. other indices, e.g., CPI and Industrial Composite Index

Both in terms of the arbitral jurisprudence generally and the experience at McMaster, arbitrators have been mainly guided by comparability. Further, as noted in the Mitchnick award and in other awards, comparability based on recent wage trends reflect private sector settlements.

2.11) McMASTER AS A CENTRE OF INNOVATION

AND OF ACADEMIC EXCELLENCE

We turn now to examine the stature of McMaster as a teaching and research enterprise for two reason. First, one could perhaps justify a salary reduction at McMaster if the quality of scholarship had been declining. This is far from the case and if anything standards are rising. Second, we believe that the principle of rewarding merit through the McMaster CP/M scheme has encouraged high standards of scholarship and has played a central role in encouraging innovation and excellence at McMaster. We believe that the CP/M plan is one of the reasons why the stature of McMaster as an academic enterprise has grown.

The academic strengths of McMaster have been extensively documented in national and international studies. The University has a long tradition of excellence and innovation in both teaching and research. This tradition has been fostered over the years by presidents and faculty alike in the goal to advance McMaster University's ranking as a first-class educational institute. Success in meeting these goals is reflected in McMaster's standing in the increasingly influential annual rankings of Canadian Universities by Maclean's magazine. Since the first ranking exercise in 1991, McMaster has been consistently ranked in the top five Universities across Canada. For the last three years it has earned the distinction of the "most innovative" university when compared to similar institutions.

The long-standing commitment to excellence and innovation at McMaster has spawned some remarkable teaching and research achievements across all Faculties. McMaster medical school pioneered the "McMaster Model" which emphasizes interdisciplinary studies amongst a cohesive body of students from diverse educational, cultural and life-experience backgrounds. This Model which emphasizes problem-solving and self-directed learning has been adopted by at least 15 other medical schools around the world. McMaster's Arts and Science Program is yet another long-standing innovative program that offers students the opportunity to develop skills of writing, critical reasoning and inquiry in the study of subjects from both the arts and sciences. The tradition of innovative teaching continues into the present as evidenced in the launching two years ago of multidisciplinary Theme Schools that emphasize critical, self-directed learning. We are also experimenting with an electronic classroom that allows students from Guelph, Waterloo and McMaster to share in their educational experience. Contributions to innovative teaching made by individual faculty members is reflected in the receipt of numerous teaching awards by McMaster faculty, including 5 national 3M Teaching Awards in the last 9 years. Faculty commitment to teaching is reflected in the fact that of the 15 Ontario universities, a student in a first-year McMaster course is more likely to be taught by a full-time, tenured or tenure-track faculty member (see Table 11). (see Queen's 41%, Waterloo at 52.8% versus McMaster at 75.9%).

TABLE 11

Percentage of First-Year Classes Taught by Tenured or Tenure-Track

Professors in Ontario Universities

SOURCE: "Classes", Maclean's, Volume 108, Number 47 (November 20, 1995), p. 34)

Teaching innovations in Universities such as McMaster are inextricably linked with the pursuit of excellence in research by its faculty and graduate students. This link was explicitly recognized by McMaster University in its 1995 submission to the Ontario Council of University Affairs. The report submits "The unique character of universities is that education and research are interwoven. The pursuit of both is an essential characteristic of a university, and we maintain that undergraduate education is enhanced when it is provided by active scholars and researchers." Some measures of the pursuit of excellence in research can be found in the number of faculty with PhDs and the number of peer-adjudicated grants held by McMaster faculty and graduate students. According to Maclean's magazine (1995), McMaster ranks third ( 95.9%) to University of Toronto (95.9%) and York University (96.2%) in percentage of full-time faculty with PhD's. McMaster has the highest ratio of research income to operating budget of any Canadian University and has seen external research support to the University more than double in the last 10 years, rising from $37m in 1983-84 to more than $76m in 1993-94. McMaster researchers were awarded more than $13m in new grants from federal granting councils in 1993-94 alone. Contained within this figure is the prestigious $10 million federal government grant to a McMaster-led group that is expected to develop a network of centres of excellence whose job it will be to increase efficiency and effectiveness of Canada's health care system. While the reputation of McMaster's medical researchers is widely recognized, faculty outside of health sciences have also established a high standard for research as is evidenced by the rise in the percentage of non-health science faculty with research awards. Between 1987/88 and 1993/94 the percentage of non-health science faculty with awards increased from 48% to 59%. (See Appendix 6 on workload.) The jewel in the crown to McMaster's research achievements came last year when Dr. Bertram Brockhouse, professor emeritus of physics was awarded the 1994 Nobel Prize for Physics.

At this time when Universities are being restructured and their budgets cut, McMaster's new president, Peter George, has voiced repeatedly his commitment to maintaining and furthering McMaster's reputation for innovation and excellence in teaching and research. The President has laid out a future plan for McMaster University in a document entitled "Directions" in which there is a commitment to "excellence in teaching and in scholarship", "creativity in the discovery, communication and preservation of knowledge" and "recognition for originality and imagination in research and learning". To achieve the goal of a "world class reputation", the President has committed the University to "quality", an improved work environment and "reward [for] those whose work achieves new heights of scholarship, whose teaching attains high levels of performance, and whose valuable contributions allow us to serve our clients more effectively." In promoting his vision of McMaster University, Peter George has pledged support for faculty renewal and in particular for rewards for young faculty so that outstanding young faculty will remain at McMaster. In this way McMaster University can continue its tradition of excellence and innovation.

2.12) FACULTY QUALIFICATIONS AND WORKLOAD

A salary reduction could perhaps be justified on the grounds that faculty productivity has fallen. Again this is far from the case. The Faculty Association argues that the full-time faculty at McMaster University are a highly qualified and hard-working faculty whether considered alone or in comparison with other Ontario universities. McMaster faculty are more likely to be used to teach first-year students, are more likely to teach large numbers of undergraduate students at the junior levels, and are more likely to have PhDs. Over time workloads have increased as students per faculty have increased and University resources allocated to instruction have decreased. Despite this, faculty salaries have slipped against both a number of other universities and the private sector in general.

There are many indicators of aggregate faculty quality. One of the most usual of the comparative indicators measuring aggregate faculty quality is the percentage of full- time university faculty with a PhD degree as its highest degree. In Ontario, McMaster has the third highest percentage (95.7%); only .2% behind the University of Toronto and only .5% behind York University, the leader (see Table 4).

Over the past ten years, the teaching workload has increased. The student/faculty ratio has increased 19% (Appendix 6). This is a continuation of a longer term trend that goes back to at least 1974. The University administration has acknowledged "an unwelcome increase in the student/faculty ratio has occurred", that "the average class (or section) size" increased dramatically since 1974, and that the "support staff" for the faculty has also decreased in an important way (See Appendix 18, McMaster University, In the Matter of a Final Offer Selection Brief Submitted to O. B. Shime, March 23 1990, pp. 50-52).

McMaster faculty are more likely to teach in relatively large classes. At the junior undergraduate levels, McMaster's classes are very large (see Table 12, p. 41). Classes over 100 students account for over a quarter (27.4%) of McMaster's classes. No other Ontario university is even close (Waterloo is next at 19.6%).

Larger classes place increasingly greater academic and administrative demands on the McMaster faculty such as increased grading and student consultation. In short, McMaster is asking faculty to do more with less help and fewer real resources compared to other Ontario universities. We are being forced to increase our productivity through larger class sizes in the context of deteriorating support and working conditions.

2.13) WHAT IS THE FINANCIAL IMPLICATION OF OUR PROPOSALS

2.13.1) STATE OF UNIVERSITY FINANCES

The administration has argued, and, no doubt, will continue to argue that it cannot afford to pay for our CP/M increase. The administration likes to tell the University community that its operating budgets are in deficit and they simply can't afford to pay CP/M. While it is undoubtedly true that University operating funds are under some pressure it is very difficult to accept their budgets as much more than total political statements. We argue that the audited financial statements, which are based on standard accounting practices, are a better measure of the University's current position and we rely on these in our later analysis.

Both sets of statements are supposed to report on the same basic information so that it should not matter too much on which we draw. The Audited Financial Statements have the advantage that they are signed by the Auditors who must follow certain practices and who must account for is included and how, a problem which is particularly acute in the reporting of assets. We will report further on this selectivity below.

A second aspect of budgets that makes us choose the audited statements is that they are forecasts and can be highly inaccurate. A cursory look at recent budget forecasts suggests a consistent trend to exaggerate our financial distress.

Finally, we note that University budgets build in at an early stage assumptions about the use of

TABLE 12

Percentage of Classes by Size Groupings at First- and Second-Year Levels

in Ontario Universities (from smallest to largest)

C L A S S S I Z E

SOURCE: "Classes", Maclean's, Volume 108, Number 47 (November 20, 1995), p. 35.

assets in the current operating budget. If we are to accept the budget as the starting point of the discussion, we have already accepted these decisions about asset use and we wish to challenge these. We recognize that the administration has to look ahead, however, we use trends in the audited financial statements as a more reliable measure of overall University finances.

The first point, that University budgets are selective, is easily made with respect to this year's current budget that was reported to Senate and the University community as a whole in June 1995. Table 2.5.1 is taken from the material distributed to Senate in June. This should be compared with the identical category of data contained in a table headed Attachment I and entitled, 1995 Appropriations. MUFA received this later document in July after studying the June budget and requesting full information on appropriations. Both documents are supposed to report the carry-forwards (surplus or deficit or appropriations) from the last budget year. The two columns titled May 1995 Appropriated Surplus and May 1995 Debt in Table 2.5.1 give the same information as the column titled 1994-95 in Attachment I. Item 16 (a through f) in this supplementary document shows another 5 items (all surpluses) that were not reported in June and which include another $1.7 million of surpluses. These are surpluses that have been accumulated in the operating budget in past years and, it appears, targeted to particular purposes as, of course, are other surpluses. But the point is, this is selective reporting.

NOTE: THE NEXT TWO TABLES IN THE REPORT ARE NOT ELECTRONICALLY AVAILABLE BUT WE CAN DESCRIBE THEM HERE. THE FIRST IS FROM THE BUDGET SUBMISSION THAT WENT TO SENATE IN JUNE (TABLE 2.5.1) . FOLLOWING THAT IS AN UPDATE OF THE FIRST TWO COLUMNS OF THE TA BLE THAT THE FACULTY ASSOCIATION RECEIVED IN JUNE.

TABLE FROM ANALYSIS & BUDGETING (located on p. 44 of Brief)

ANOTHER ATTACHMENT (see p. 45 of Brief)
and CONTINUATION OF ABOVE (p. 46 of Brief)

A second example of the selective nature of reporting is to be found at the bottom right hand corner of Table 2.5.1 in the line called 'Decommissioning of Nuclear Reactor". Here a $3.1 million debt is added to the accounts which makes us (McMaster) appear to have a very large debt. We do not at this stage challenge this as a reasonable estimate of decommissioning cost (we have no basis for accepting or rejecting). What we would point out is that there is no estimate made of the timing of these costs and how they would feed into the next year or two of the budgeting process, nor of any offsets that might be provided by governments to help close this unique research facility (such financial support has been investigated and as far as we know those avenues are by no means closed), nor of the future savings that will accrue because we no longer have to run a reactor (there is $700 thousand built into the 1995-96 budget that will not be needed in the future).

These same two tables are also useful in making our second point: budget forecasts can be quite poor indicators of how things will turn out. Table 2.5.1 reports in the first two columns "appropriated surplus" and "debt" (sic. The second column should be entitled "deficit" or simply "negative appropriations") with a heading "Position at May 1 1995". Since this information was reported in June to Senate, and the budget year was well over by May 1, one might expect a column titled May 1st to provide pretty accurate estimates. If one thought that, one would be quite in error. The same information on surpluses and shortages on a revised basis was provided to MUFA in July and is reported in column 1 of Attachment I already referred to. The differences between the two sets of estimates are startling. The most glaring result is the May forecast of a $346,000 deficit in Health Sciences reported in June which turns into a $1.65 million surplus by July. Not all of the deficit numbers turn into surpluses but the majority move in the positive direction. The $3.222 million at the bottom becomes about $6.4 million while the $1.18 million shortage becomes $1.34 million.

A third example of selective use of information you will find in Table 2.5.1 and which also appears to be a political use of budget statements, is to report the positive and negative appropriations in an asymmetric fashion. We have already noted in a previous comment that the administration does this in its budgets (though not in audited financial statements). What we also wish to draw attention to is the strange practice of adding up all the positives and negatives separately but then only counting the negatives (referred to in Table 2.5.1 incorrectly as "debt") to come up with an overall institution debt. Thus the $1.180 million at the bottom of the second column of Table 2.5.1 is added into a "debt account" at the bottom of the table and the $3.222 million at the bottom of the first column is ignored. Had the $3.222 million been included we would have shown an asset rather than a debt at the bottom left hand corner of Table 2.5.1.

When quizzed on this unusual accounting practice the administration points out it is Board of Governors policy to treat these accounts asymmetrically. We don't think the distinction of whether it is an administrative practice or a Board practice matters in this matter. It is an arbitrary accounting practice designed to emphasize the elements of the University in deficit. Secondly the administration points out that the departments and Faculties that have accumulated the surpluses are rewarded by being allowed to carry forward the surpluses (a reasonable management practice) so the surpluses are really not available to the institution as a whole and cannot be counted in the asset/debt line. What this argument conveniently forgets is that departments and other units have been held equally accountable for their deficits (as they have been held entitled to their surpluses) and so these do not have to be met by some greater university body either - the departments and units have to eventually meet the deficits out of future operating budgets. The administration should count on them to do so.

While we are on this item of the institutional debt, it is worth mentioning that the July revised figures would have yielded a very different picture If the revised figures were used from Attachment I (and all the items included), we would have had $8.2 of positive surpluses offset by $1.3 million of negative surpluses. This leads to a very different conclusion about the University's financial health. The bottom left hand corner of Table 2.5.1 would become:

CORPORATE FUND ($ million)

Cumulative surplus within envelopes 6,856

Cumulative Corporate Debt -1,700

Total Surplus 5,156

Thus, rather than leaving the suggestion of crisis, the community would be left with the suggestion of "fat budgets". We can appreciate why the administration might wish to focus attention in this fashion but it is another reason for us to treat budgets as political documents.

The third reason for not using budgets in our analysis is that when a budget comes forward to the University community, the administration has already made a number of key decisions that greatly affect how one might interpret the budget. Two examples are worth noting in this regard. Decisions need to be taken about University cash assets and how they might be used to aid in meeting the University budget. Generally the administration takes the position that the interest income on assets not designated for specific purposes can be added to the budget to supplement revenue. In the 1995-96 preliminary budget $2.7 million is estimated as being available from this source. Some of the interest earning assets here are simply because revenues come before expenses and the University gets the asset income. However, some assets are accumulations from previous years whose principle could also be available to supplement revenues to the operating budget. For example, over the last couple of years the administration was stopped from paying into Canada Trust amounts that had been set aside for our pension plan. This was because our pension fund surplus had grown too large in the eyes of Revenue Canada. We provide as Appendix 22 the statement of the monies not paid in provide to us by the administration. These monies are now sitting in a bank account. Someone has made the decision that the interest earnings can be made available for the operating budget but why not the principal. This one example amounts to about $7 million in cash. Suppose we amortized this over 5 years and brought it into our operating budget, what would our financial position look like? We are not necessarily advocating this strategy but we note that such decisions are made routinely before the budget gets any discussion and after the fact no information is available about what other possibilities could have been explored. Such problems do not arise so obviously with the audited financial statements. Total year end assets are reported (see Appendix 15, the combined Balance sheet) and one can study year to year changes in the asset position to track what is happening. This we do in later analysis.

In short, while it might be argued that it is reasonable to acknowledge current and future budget problems, to show but one side of the picture -- the side that makes things appear quite bleak, is hardly a neutral statement. The budget is a political document.

Our own review of the University's audited year end financial statements provides not only a more accurate picture of the state of University finances, but also a much less bleak picture than that reported by budget forecasts. By looking at trends over the last ten years, we can measure the overall direction of University finances. We turn our attention first to the trend in current assets over the last decade. Current assets are made up mainly of marketable securities as well as some cash and receivables. They exclude capital assets, mostly buildings, which are entered on the book at their original cost and have an untested value on the market. Two items stand out in Graph 1. First, University current assets grew rapidly in the late 1980s. Second, while the rate of growth has slowed, it has not reversed. In the year ending April 30 1995, the most recent year for which we have data, current assets increased by $8.8 million or by 4.7% over the previous year.

GRAPH 1 GOES HERE (see p. 51 of Brief)

Graph 2 examines the trend in University revenue narrowly defined as grant revenue and tuition revenue reported under the operating fund. These funds would be the main source of revenue to finance the University's teaching activities. In 1994/95 they represented only 47.9% of total revenue available to the University. In Graph 2 one can see that revenue grew rapidly up until 1993, after which it showed a small decrease. In percentage terms, revenue narrowly defined has decline by 2.1% since its peak in 1993. It is important to note that this decrease is much smaller than the often referred to decrease in government grants to the University which have fallen by 7% or just under $9 million since their peak in 1993. Much of this fall has been offset by an increase in tuition income equal to 18% or just over $5.5 million.

GRAPH 2 HERE (see p. 52 of Brief)

graph 2 shows revenue (grants + tuition) from 1985 to 1995.

Revenue narrowly defined as grants plus tuition tells only part of the story of University finances. A slightly broader measure of revenue is total unappropriated revenue in the operating budget which includes revenue as defined above plus monies for research and from investments. This still represents only 78% of total University revenue. The overall trend is similar, however one should note that since 1993 this broader measure of revenue has shown a marginal increase of 2.8%.

GRAPH 3 HERE (see p. 53 of Brief)

graph 3 shows total operating fund revenue from 1985-95.

Together, these graphs suggest that while certain areas of the University are under some financial pressure, the same cannot be said for the University as a whole. During 1994/95 the unappropriated operating budget did show a deficit of just over $2 million, which represents just under 1% of the entire unappropriated operating budget. However the University as a whole enjoyed a surplus of just over $3 million, which represents just over 1% of total revenue.

A second item which the audited financial statements show about the operating budget is a worrying trend in the share of grant and tuition revenue used for instruction. The instructional envelope is reported in Statement A-2 (see Appendix 15) of the audited financial statement. If we divided the number of dollars in the envelope by revenue narrowly defined as grants plus tuition we see a clear downward trend since the late 1980s when the instructional envelope represented around 70% of revenue narrowly defined. In more recent years this number has been closer to 65%. Given that the number of students at McMaster has been growing during this period it further supports are contention in section 2.12 of this brief that faculty workloads have been increasing while at the same time faculty are provided with less support to perform their jobs.

GRAPH 4 HERE (see p. 54 of Brief)

graph 4 shows instruction expense

The arguments presented above, in our judgement, justify the modest proposals we have presented for final offer selection. We feel a strong case could be made for demanding an ATB in excess of 6% and a merit scheme based on the 120 par units per 100 faculty members. Such a proposal would truly insure that the adverse effects of the Social Contract not be extended into the post- Social Contract period. We have been more modest, perhaps excessively so in the opinion of some our members, and have focussed almost exclusively on removing the horizontal inequities created by the Social Contract and preserving the system of faculty remuneration in place at McMaster for nearly three decades. We ask that the merit awards already announced by the University be converted into cash payments at the rate of 110 par units per 100 faculty members and that an ATB of .2% be made upon receipt of a positive ATB by at least two of the four universities in Ontario with medical schools.

We have stressed that the established structure of compensation at McMaster is regulated by the practice of merit payments, a non-linear salary profile which is steepest for the junior ranks, and differential progress along the salary profile. To deny our proposal for restoration of merit awards would seriously disrupt the existing pattern of faculty salary compensation freely negotiated between the two parties. It would perpetuate serious horizontal inequities between faculty at different points in their careers. It would deviate from the clear pattern established in the Ontario educational sector where teachers are being returned to the appropriate point on the grid as if there had been no Social Contract.