Pay Raises

Q

I appreciate management's efforts to deal with the budget shortfall this
year by delaying the annual pay raises, and I realize that the budget for
next fiscal year is unlikely to be known with certainty until after the new
administration takes office in January. However, I am concerned that the
recently determined pay raises do not include a cost-of-living adjustment
that compensates for the actual inflation in the past year, which has been
about 4% since our last pay raise in June 2007. (See
www.inflationdata.com/Inflation/Consumer_Price_Index/HistoricalCPI.aspx.)

How does UCAR determine the annual cost-of-living adjustment, and how does
this relate to the Consumer Price Index? Does UCAR intend to prorate the
cost-of-living adjustment this year to compensate for 16 months of
inflation (June 2007 to October 2008), or just 12 months?

Answered on July 11, 2008

A

In order to answer your question
completely, it is helpful to first give some background on how UCAR
determines its annual range movement and merit increases, and the
difference between these and a cost-of-living adjustment.

UCAR's pay policy does not include an annual cost-of-living adjustment
(COLA). A cost-of-living adjustment would be an identical pay raise either
as a flat rate or as a percentage of salary given to all eligible
employees. For example, under a COLA plan, all employees would get a 3% pay
adjustment based on the cost of living. Most organizations do not use
COLAs; those that do typically use the Consumer Price Index (CPI). The
projected CPI at the time salary increases for 2008 were determined was
2.2% (U.S.) or 3.1% (Denver Metro).

Like most organizations, UCAR has a merit pay system, and this is
consistent with our compensation philosophy. Merit increases are
adjustments to an employee's pay based on performance. While UCAR
management does consider cost-of-living indices when making pay increase
decisions, we do not have a formal cost-of-living adjustment built into our
salary increases. Merit increases are determined by salary market data and
what other companies are projecting to pay their employees in the upcoming
year. HR makes recommendations based on this data to both the President's
Council and the Personnel Committee of the Board each year. For this year
the merit increase budget was 4%.

As you note, UCAR has experienced a budget shortfall this year. On January
17, UCAR president Rick Anthes sent out an e-mail message to all employees
describing the projected size of the budget shortfall for FY08 and the
steps UCAR management was taking to mitigate its impact. Rick noted in his
letter, "The four-month delay in salary increases and associated increase
in benefits will save about $1 million across all of UCAR and could save a
significant number of jobs at NCAR and in other UCAR programs."
Since the merit increase delay was implemented as a cost-saving measure, we
are unable to prorate the merit increases back to June. Merit increases
will be effective
on October 5.

--DELAINE ORENDORFF, COMPENSATION AND HR MANAGER