New Zealand / Covid 19

Victoria University considers 20% pay cuts due to Covid-19 losses

10:12 am on 29 April 2020

Victoria University is considering slashing staff pay by a fifth or moving them to a four-day week to help it cope with a forecast $50 million drop in income.

Vice-chancellor Grant Guilford said said the university had just started talking to staff about options for reducing the deficit. Photo: The Wireless / Rebekah Parsons-King

Meanwhile, Lincoln University has asked its staff to volunteer for a 5 percent pay cut.

Both universities are hard hit by the Covid-19 pandemic, which has reduced foreign student enrolments as well as income from research and investments.

Victoria University vice-chancellor Grant Guilford said it had moved from a forecast surplus of about $14 million to a forecast loss of up to $40m.

"So it's about a $50 million swing on a $500 million turnover," he said.

"Most New Zealand universities have got a similar challenge on their hands."

He said the university had just started talking to staff about options for reducing the deficit, which he said would be a two-year process.

"We're looking at a raft of different things from a 20 percent-type pay cut across the board, to a four-day working week, to voluntary reassignments, different approaches to leave balances, employee giving programmes, early retirement programmes and if need be, compulsory or voluntary redundancies is our last option," he said.

Guilford said reducing staff pay would help the university cope with this year's cut in income and prepare for next year.

"By taking a pay cut of that order for a period of time, such as a year or six months, whatever we might agree, we buy ourselves some time to be more careful in the way we go about any changes we may want to make."

Education Minister Chris Hipkins said he believed universities were fairly well placed financially to survive the pandemic.

"I think they're being a little bit premature if they're making those kinds of moves," he said.

"The universities won't have lost a sign portion of their revenue at this point, they're still getting all the government subsidies that they usually get, they're still getting the student fee revenue that they would have got and in fact their enrolments are likely to go up because we know that in times of higher unemployment participation in higher education increases."

"They're actually in a good position to weather this storm financially" - Education Minister Chris Hipkins

He said it was true there were fewer international students - who pay higher fees - but he did not think recent statements about this spelling financial ruin for universities were backed up by the evidence.

"They have cash reserves and borrowing facilities of up to around about a billion dollars.

"Everyone, I think, is having to draw on reserves and draw on borrowing and so on - in order to keep businesses operating - and universities are no different to that. Their difference is their revenue is actually relatively stable.

"I think some of the alarmist comments being made are not backed up by evidence.

He said universities may be having to defer some projects they had been planning to progress, but universities were fairly well placed financially to survive the pandemic.

"Rebranding exercises at the current point in time perhaps are not a great thing for them to be spending money on but they're actually in a good position to weather this storm financially."

Guilford said the university could dip into its reserves, but not for long.

"We can spend more than we earn briefly, because we have the balance sheet to do that, but if we continue to do that year after year without making sure that our costs are matched by our revenues then ultimately we undermine the future of the university."

Guilford said the financial impact of the pandemic was likely be worse next year.

"The international student programmes steadily empty out as different cohorts graduate each year and if you can't fill the pipeline with a new cohort because the borders are still closed you progressively end up with fewer and fewer international students in your classes.

"With government talking about the borders staying closed for a long time we're expecting it to get a lot worse in 2021 and potentially worse again in 2022 if we haven't managed to make the necessary changes."

Pay cuts, shorter hours possible at Lincoln University

The acting vice-chancellor of Lincoln University, Bruce McKenzie, said the university had been expecting 48 percent of its students would come from overseas this year.

He said because of the pandemic the number was lower and the university was facing an $11m fall in income.

The university had already taken a range of cost-cutting measures, but it was now introducing more.

McKenzie said he had cut his pay by ten percent for six months, no senior managers were accepting a pay rise or bonus, and staff had been asked to consider contributing too.

"Staff have been asked to consider taking a temporary 5 percent pay reduction, or to work a nine-day fortnight for six months," he said.

"We've got probably 10 people who have so far said 'yep, I'm up for this, I'm happy with this'. We've had some people say, 'hey I can't afford it, but I'll work a day for free for you'."

Lincoln University is expecting a sharp fall in overseas student numbers. Photo: Lincoln University

Derek McCormack is Auckland University of Technology vice-chancellor and chairs Universities New Zealand - a committee representing the country's eight universities - and said the sector was already facing an 11 percent hit, with worse expected next year.

"At the moment based on the enrolments that we expect so far we are taking about an 11 percent, 12 percent hit across the sector. That's about half a billion dollars."

"There won't be any university that's in the black this year, we'll all be making losses" - Derek McCormack

"Next year is likely to be bad as well, possibly worse if no international students can come onshore."

He said that for this year, cutting staff was not really an option because the staff were needed and their contracts mostly did not allow it.

"I think what we're talking about in most places is asking staff perhaps to consider voluntarily either reducing or deferring pay or diverting it into some other form, which might be making a donation to a fund, making a donation before they receive it so it's not an outgoing from the university."

Union opposes pay cuts

Tertiary Education Union president Michael Gilchrist said universities were losing 20 to 30 percent of their income this year but they should not be asking staff to cut their pay.

"All of these universities have strong balance sheets, they all do have surpluses accumulated in earlier years and the purpose of those of course is to offset the shocks in other years," he said.

"We are advising our members not to enter into any kind of negotiations to make pay cuts at the moment."

Gilchrist said different universities were taking different approaches and the union wanted them to develop a national strategy with the government.

"We believe all universities have strong balance sheets at the moment, and it's too early at this stage" - Tertiary Education Union president Michael Gilchrist

"We need universities to hold their nerve.

"I think we need to see how the country's positioned ... we need to see what the government's national redeployment and retraining strategy is like, what other financial support the government can provide for universities.

"We're saying that it's too early to tell quite how it'll unfold. The government has taken some steps to offer financial support to universities in 2020, we need to talk about what kind of broad support can be offered in 2021, we believe something along the lines of the steps taken in 2020 is appropriate."

He said the universities, government and industry should sit down and work out a nationally consistent approach.

"If we need to pivot our economy then really the main point on which the economy will be pivoted to position us for the future is around tertiary education ... we don't want to sacrifice capacity. We want to be in position to take advantage of that opportunity and to make that pivot possible."

He said it could be appropriate for pay cuts to take place further down the track but there was already an upsurge in domestic student demand and universities needed to see what other factors would be in play as time went on.

No other universities admitted to considering staff pay cuts.

The University of Waikato said it was expecting a deficit of $5m-$10m.

AUT said its income would be down by tens of millions of dollars. It had already frozen recruitment and was considering "a range of options".

The University of Otago said none of its financial forecasts included a surplus this year. It said it was not considering pay cuts or reduced hours for staff.

Massey University said it was in a strong position, but as the situation was changing rapidly it could not provide an estimate for this year's financial result.

Hipkins said he would soon have more to say on extra support for students and student groups.

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