Framing an Ethical Audit
Changing employee compensation and benefits at Emory

BY JAMES W. FOWLER, DIRECTOR OF THE CENTER FOR ETHICS AND CANDLER PROFESSOR OF THEOLOGY


Recent discussions of possible changes in Emory employee benefits make this a timely occasion to offer a potential framework for an ethical audit of the patterns of compensation and benefits Emory offers its employees.

Let me acknowledge at the outset the seriousness of the fiscal challenges we face as a result of eighteen months of a stagnant economy, the fallout from September 11, Enron’s collapse, and a depressed stock market. Emory has been seriously affected by these national conditions. Also, the university’s debt structure makes no allowances for economic slow-downs. We must continue to pay for our investments in buildings, landscape architecture, and ongoing maintenance as well as scholarships and salaries.

Moreover, the university is trying to maintain joint benefits for employees in Emory’s hospitals and healthcare institutions as well as in the university. This is important because it keeps the insured population as large as possible, for actuarial reasons. It is also important because of the decrease in federal support to hospitals, which seems likely to continue, by Congressional action, at 6 percent per year. This has had disastrous results for many university-related hospital systems. This is the context in which we are being asked to consider, with administrative leaders, proposals for changing the university benefits provisions.

The proposals in question focus primarily in three areas: 1. reducing the amount and duration of courtesy scholarships for qualified dependents or partners of employees; 2. reducing university contributions to 403b retirement plans, resulting in increased costs to employees; and 3. reductions of university contributions to retirees’ coverage for health care. I will not go into the details of these proposals in this writing. Rather, my intent is to explore with you an ethical frame for considering necessary cuts in terms of fairness and impact on the common good for Emory people. In what follows, I invite you to imagine another
way we and the university’s administration and trustees might consider approaching our budgetary challenges.


A“VEIL OF IGNORANCE”


Let me begin with the proposal of an ethical framework that may be useful for organizing our reflections. John Rawls, emeritus Harvard philosopher and ethicist, developed what he called an Ideal Contractual Theory of Justice. Rawls’s thinking about equity and justice fits well, I believe, with the challenge of shaping an ethical audit regarding the cost-cutting proposals under consideration. Let me give a brief sketch of Rawls’s model, then indicate how it may help us think about the decisions on our agenda.

Rawls’s method involves three reflective steps:
1. We are asked to imagine that we are temporarily unaware of our present role and position at Emory. This temporary amnesia entails forgetting our actual role and status at Emory by imaginatively stepping behind what he calls the “veil of ignorance.” Thus we would have an equal concern about what’s right and fair in compensation and benefits for all members of the community, since we could be in any employee’s position in any department or sector of the university.

2. We are invited to consider what ethical guidelines or principles we would propose for guiding any change in the distribution of monetary rewards, benefits, or burdens for Emory employees. Not knowing what our role or status might be, we would be careful to think through the legitimate grounds for differences in compensation. We would think about variations due to differences in talent, education, or training; to the rarity or the wide availability of our skills and qualifications; and to the weight and uniqueness of our responsibilities.

3. At the same time, we would likely think about what level of
support and benefits is really fair for those whose positions involve the lowest compensation. In this connection, how much, in terms of salary and benefits provision, is truly enough at any of the range of positions we might occupy?
It is in relation to this last issue—of what is truly enough—that Rawls points to a final step: employing the test of the “difference principle.” This principle states that any proposed change in the giving-getting patterns of an economy or an institution, if it is to be ethical, should take care to see that it benefits the worst off in the community first. Before deciding on changes or increases for persons at other income levels in the community or institution, we need to consider the proposal’s impact on those whose compensation packages are at the low end. If we are temporarily behind the veil of ignorance and have no idea what our status or reward level would be in the institution, it would be prudent to insist upon paying attention to this provision. Special care should be taken to ensure protection for those most adversely affected by a change of policy or practice. We might be among them.

LIVING ETHICALLY IN A TIME OF STRINGENCY


From Rawls’s standpoint, Emory might have a number of options for dealing with the “lean years” that should be alongside the three presently under consideration. Consider the following possibilities:

First, we might look at our policies of providing annual raises. We have been told that the rate of raises for the coming year will be 3 percent, and that the provision of raises will be tied to merit, not given across the board. One factor this guideline does not address is that a 3-percent raise at $30,000 ($900) is significantly less than a 3-percent raise at $80,000 ($2400) or at $125,000 ($3750). Then there are the costs of benefits, which are also based on salary level. Benefits are set at 27.5 percent. That rate at $30,000 is $8,250, at $80,000 is $22,000, and at $125,000 is $34,375. The equal percentage of raises belies their unequal impacts across the spectrum of wage and salary levels. Another not-discussed factor in this proposal is that the annual raise system, whether at 4 percent or 3 percent increase across the board, steadily and annually widens the salary gap between lowest paid employees and those in the middle and the top ranges.

As a temporary measure, we at Emory might consider a scaling of raises, so that for the next three fiscal years, employees from the minimum $17,160 to $25,000 might receive 3-percent raises, employees from $25,000 to $60,000 might receive 2 percent, and those above $60,000 might receive 1.5 percent. This temporary address to the shortfall in income might be embraced for three years without permanently lopping off significant long-term benefits.

Second, it appears that a significant number of employees in the lowest sector of income at Emory ($17,160 to $30,000) do not participate in the health care provisions of our fringe benefits. I have not been able to get precise percentages on non-participation. Apparently it is difficult to tell whether those at this range of income who do not participate make this election because a spouse has insurance from another source, or because they judge that they cannot afford insurance, or may not need it. For some families, though, this is a devastating hazard. Uninsured families usually use emergency room care when there is serious illness; medication costs can be overwhelming. The cost per month for EmoryCare’s subsidized plan for a four-member family is $330. This cost is the same for all families in the plan, regardless of salary level. From the standpoint
of Rawls’s perspective on justice, it would be more equitable to have a graduated plan in which as salary grows higher, persons would contribute more to the common funds that provide Emory’s self-insurance. Those at lower income levels would pay smaller percentages.

Third, in addition to recommending that we consider the options mentioned above for dealing with our present “lean years,” I suggest that we not make permanent changes or cuts in the three areas under consideration. With a large endowment which should retrieve some of its value and income level, Emory is unusually blessed. The early signs of economic recovery have begun to emerge. Three years of the kind of stringency suggested above, coupled with strengthened efforts at increased fund-raising and grants, could give the university’s endowment time to “refill the well.” In the meantime, we should look at equity and fairness in relation to the giving-getting ratio for those who serve Emory across the spectrum of roles and contributions.

It is striking that the three proposals presently on the table all involve reductions or forfeiture on benefits with long-term impact on present employees or retirees. Most significant, I believe, are those that represent a change of contract in health care coverage for already retired faculty and employees. Cuts in our contractual obligations with the already retired will place unexpected and serious burdens on many on fixed incomes. In the “veil of ignorance” mode, we really need to take the perspective of loyal past faculty and employees who will be harmed by the proposed reductions.

As regards the proposed cuts in contributions to employees’ 403b retirement plans and to courtesy scholarships, we need to try to evaluate their impact in terms of diminished loyalty and diminished attractiveness of Emory to present and future potential employees. In an environment where Emory’s salaries and wages are in the mid to low range for many fields, the strength of our benefits package gives Emory an edge and commands employee loyalty. Among those benefits that mean most to some employees are the courtesy scholarships. Many have given up better paying positions to work at Emory in order to enable their children to attempt to qualify for Emory’s tuition waiver benefit. The proposed reduction of this benefit brings deep hurt and resentment. For a larger group, the health care provisions are a vital attraction. Though hard to calculate, we should give serious thought to the long-term impact of these proposed cuts on employee good will and trust, and on Emory’s ability to recruit and retain the quality of employees and faculty with which we are presently blessed. In facing the necessity of dealing with exorbitant rises in cost, we all need to find a place on the same page.

I hope consideration of the usefulness of Rawls’s ideas can help guide our discussions and test ethical frame for the decisions facing Emory. Considering the interim option I have proposed could provide a space for constructive considerations, with good will, about how we face present and future fiscal challenges. Both plans involve painful cuts and belt-tightening. What is the most just way for us to address a set of problems that affects us all? This is a good community and a great educational institution. We need to care for it, for each other, and for those ahead of us and behind us at Emory.