Six practical steps to deal with vice chancellor pay

Defending vice chancellor salaries is not the easiest job at the best of times. Andrew Adonis’s recent Twitter onslaught on the issue has generated huge debate, so it was no surprise that after months of sabre rattling, Jo Johnson is now trying to force pay restraint. On paper, it’s a strong political hand to play. On pay this summer, vice chancellors have come across as arrogant, defensive and out-of-touch.

And for years, they have been all but tone-deaf in handling legitimate questions about inflation-busting pay and pension packages. It is rare to find any institutional leader on the record accepting the need to account for their publicly-subsidised remuneration, or even exhibiting genuine humility – it is, after all, a privilege to get rewarded richly. It is rare even to see an acknowledgement that VCs need to prove their value to employees and students every single day.

The University of Oxford’s Louise Richardson didn’t look good comparing her pay to bankers and footballers, or slamming “mendacious media” and “tawdry politicians” for linking rising fees and rising salaries. That attitude is not good enough when the cost of living is getting tighter for students; fees are going up, and the repayment terms getting tougher.

Like it or not, university bosses have brought this on themselves.

A question of corporate ethics

The debate is more fundamental than whether Professor Bloggs is being paid too much or not. Vice chancellors lead complex, international businesses with thousands of staff and students, many with a turnover of hundreds of millions of pounds. It’s a very tough job, requiring experience, skill and commitment.

But how their remuneration is agreed reflects a university’s moral compass and corporate governance – its accountability and openness; its ethos, values and ethics; its commitment to fair pay and due reward. If a university can’t do the small things right, like being transparent over pay, then it will not be trusted on the big challenges faced by the sector.

Universities have failed to recognise that since the financial crisis, public anger over banker pay has spread to other sectors – NHS, schools, charities and quangos.

Universities UK’s President and Chief Executive have called for the sector to “fight back” against “myths” and criticism. Fair enough – but the sector needs to win permission to be heard. No one will listen to its wider arguments if there is not a radical change in how executive pay in higher education is set, justified and framed.

Beyond Johnson’s reform

Which is why many feel Jo Johnson’s proposed measures are wafer thin.

First, mark my words that his claims to be acting “in the best interest of students” will be forgotten given he is refusing to change loan repayment terms and will shortly, we think, be raising maximum fee levels to around £9,500. Moreover, OfS will never levy penalties on universities for failing to justify senior pay, as it will be accused of diverting money from frontline teaching and research into government coffers.

Second, while a Conservative government will never legislate to cap pay, using the Prime Minister’s £150,000 salary as a soft benchmark is flawed. “Exceptional pay needs exceptional performance”, he says, assuming No.10’s occupants are inherently outstanding. Ahem.

The fact is Prime Minister’s salary is not based on a job spec. There are no set objectives or targets. There is no labour market or application process. Pay is set by political constraints and not to incentivise good performance. And even then, the basic pay does not include gold-plated pensions; living in No.10 and Chequers; travel, household and living allowances, not to mention their potential earning power when leaving office.

It indicates that Johnson has bought into the fallacy that large organisations rely solely on “hero heads” – ignoring a university’s success being created by the whole workforce, not the top brass. All of which opens up space for universities to accelerate and go beyond Johnson’s proposals.

We should not simply wait passively for the Office for Students to issue guidance. Or for individual institutions to agree “Remuneration Codes” – a no doubt tortuous internal process. The sector must be proactive and work together now to inject real fairness and transparency into the system.

Six ideas to get the sector on the front foot

1. A temporary freeze on vice chancellor and senior pay levels – with a full review institution by institution of current remuneration packages. That’s a genuine freeze, with no inflation-linked pay and no backdoor payments. Indeed, if individual VCs are feeling really brave they could insist their governors cut basic pay and pensions back to pre-2012 levels. Either-way, in public relations terms, institutions need to buy themselves breathing space.

2. An immediate and radical opening up of all remuneration committees implemented by 2018/19 financial year – sending a powerful message on commitment to fair, proportional pay. This could include:

  • publishing full, unredacted minutes from all formal discussion and votes on vice chancellor remuneration.
  • co-opting or electing employee, student and alumni representatives to scrutinise and vote on final packages – consulting the wider workforce before final agreement.
  • publishing vice chancellors’ job descriptions; their annual and long-term objectives; the benchmarks, data and supporting documentation used in decision making.
  • publishing each vice chancellors’ annual review by their governing body – linking reward to performance.
  • a principle of “earn-back pay” – a proportion of base salary paid on condition of meeting set targets, first proposed by the 2011 Hutton Review of Fair Pay. These need to be genuinely stretching – creating incentives for long-term delivery, not just reward for short-term decisions.

3. The Committee of University Chairs jointly-commissions an independent assessment of pay benchmarks to base decisions on – reporting back in early 2018. This should include a basket of performance measures for vice chancellors and their senior teams – including university’s market position, international competitiveness and individual performance. This needs to be more robust than just using the Prime Minister’s salary as a benchmark.

4. Publish an independently audited, central register of vice chancellor and senior leaders’ remuneration for every single publicly-funded university – published in Parliament by next summer. This could include individual and precise details of individual’s full package – basic salary, pension, bonuses, performance related pay, expenses, living subsidies and accommodation costs. It should include all external interests and related pay and expenses. And it should list engagement with lobbyists, funders, politicians and other stakeholders.

5. Publish the first annual fair pay report for the whole sector within the next 12 months – taking DfE’s proposals as far as it can go. Yes, as Johnson says, this should include publishing vice chancellor and board level ratios with the lowest paid, median wages and each salary band in their own institutions and wider UK and international sector. And it must publish universities’ detailed justification for year-on-year changes and variations for individual institutions – not hide it. But in addition, let’s open up this data up so every single citizen can analyse senior pay with the comparable-sized public sector, private and voluntary sectors abroad and in the UK.

6. Accelerating more progressive pay and reward policies across the workforce. That means exploring cooperative arrangements and gainshare incentive schemes. Committing to the living wage for all employees and contractors. Closing the gender and ethnic pay gap once and for all. Putting externally outsourced staff on the same terms and conditions as directly managed staff. Only using contractors with union recognition schemes and apprenticeship schemes. There has been piecemeal progress but all this needs rocket boosters.

Appetite for radical change?

Is there the will for all this? There are already those saying privately that Johnson’s speech at UUK was a sledgehammer to crack a nut. But universities’ flat-footedness means they are playing catch up. Universities pride themselves in setting a high, unique moral and ethical bar over other sectors, and it’s time they set a real example for others to follow.

One final thought. It’s peanuts in the great scheme of things but perhaps the bosses should make an immediate gesture of goodwill. Perhaps each university could pay a proportion of its vice chancellor’s salary into a national endowment fund for good causes including bursaries, scholarships or refugee tuition waivers.

Around 2.5% of the average VC base salary is more or less £10,000 – that’s a pot of more than £1m building up year after year, to leverage other funding from CEOs and senior leaders outside the sector.

It’s gimmicky perhaps. But it’s a quick win and would be a good start.

11 responses to “Six practical steps to deal with vice chancellor pay

  1. “Vice chancellors lead complex, international businesses with thousands of staff and students, many with a turnover of hundreds of millions of pounds. It’s a very tough job, requiring experience, skill and commitment.”
    Does it though? Now that so many VC’s are surrounded by ‘professional’ managers, chief operating officers (COO) and chief executive officers (CEO) that manage the whole with hugely expensive directorates, and take the rap (sometimes) when it goes wrong. Whilst the usually transient VC spends their first year or two stamping their personality and ideas on the place then after 5 or sometimes 10 years bugger off to screw up yet another Uni by changing whatever the previous VC did there.

  2. ‘Vice chancellors lead complex, international businesses with thousands of staff and students, many with a turnover of hundreds of millions of pounds. It’s a very tough job, requiring experience, skill and commitment.’
    I agree with a a lot of what you say, but this seems a bit over the top to me. Has any VC ever gone onto be a CEO of a top company, yet you speak as though they were.

  3. I agree.

    I do go on to write that Jo Johnson (and others) have bought into the myth that universities are led by “hero heads” – rather than reward and remuneration reflecting the success of the whole workforce. However, VCs are ultimately responsible for the entire organisation – the onus is on the governing bodies/remuneration committees to hold them to account.

    The private sector is having to face up to this since the 2008 crash – this is universities’ moment to demonstrate real leadership

  4. And on comment 2 – again agree.

    Most universities use UCEA’s cut and paste lines-to-take that independent remuneration committees set their salary levels against tough benchmarks and that Vice-Chancellors play no role in setting their own pay.

    But it’s pretty hard for universities on the one hand to slam market forces for impacting on their bottom line, then use it to justify higher “competitive” salaries.

    So yes, the truth is the vast majority of VCs are not about to be headhunted by elite universities overseas or in the private sector. There has been progress but the VC candidate pool Is still far too insular and narrow with the vast majority of senior appointments from within the UK sector. The sector needs to shake off the perception the leadership is dominated by male, white academics promoted through the ranks…

  5. There are other senior staff who work in HE in largely the professional areas (eg. Finance, IT, Marketing, Property) for whom there are market forces in play as they don’t have to work in HE. HE has recently required and has recruited such staff to bring a more business-like ethos and such skills are available, but they do cost, though most will be working for a lower salary than is available elsewhere. There are choices to be made on both sides but, undoubtedly, HEIs do need good quality and experienced leaders. What we cannot realistically manage is for a mass exodus of talent and inadequate replacement – the negative impact on students would be highly visible.

    Let’s also not forget regional differences in living costs and the impact on salaries.

  6. You’re right Alex – but the same applies for senior professionals taking less than their ‘market rate’ in the voluntary sector, social enterprises and campaign groups. Senior roles in higher education are a privilege – these are institutions with a clear moral mission, vision and values that gives satisfaction beyond pure remuneration (easier said, then done admittedly!).

  7. In my direct experience most that end up in the HE sector are either too old to be recruited at that level outside or are failures looking for a safe berth until retirement, often using the ‘agent for change’ line to cover up in advance for poor leadership skills they know will be discovered later.

  8. No Vice Chancellor who implements staff cuts is fit to serve. Vice Chancellors should defend universities against philistine government policy, not act in craven collaboration. The record of UK Vice Chancellors in supporting their staff is utterly shameful: sadly that is why most of them get knighthoods.

  9. There may be some examples, but I haven’t seen this for the most part and I think several people reading this might take issue with this view.

  10. Honest Question: If your VC failed to turn up for 3 months, would the institution soldier on or crumble? In previous Universities where I have worked, almost all the decisions were performed by DVC and surrounding level; honestly, I doubt we’d have noticed (but each institution is different).

  11. The issue of “Hero VCs”, or lack of them, is pertinent.
    Louise Richardson tried to equate university VCs to star bankers and businessmen; but if a star CEO leaves or joins an enterprise it can impact the share price by millions of pounds in value to shareholders – they make an immediate and measurable difference – and their salary premium reflects that.
    Some VC comes or goes?
    Except for a very small circle we’re talking utter indifference all round.

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