Hard raindrops keep falling on my head

It says here, for example, that the education secretary is proposing league tables of institutions that pay “bumper executive salaries” but offer “poor value for money” to students.

On Sunday The Times reported that Bridget Phillipson is set to lose her job in a reshuffle in June over her handling of schools reforms.

But it looks like she’s fighting back – today The Times reports that she is planning to publish tables detailing pay at universities where significant numbers of graduates do not go on to good jobs or further education.

She also said to be planning to require universities to provide more evidence of “what they are doing to improve students’ job prospects” and “offer better value for money” in order to retain their licence to operate.

It’s the desperate policy equivalent of roaming around a wedding reception at 11.30pm, pouring what’s left in abandoned wine glasses into a pint glass to make an exciting punch.

A “source” – who seems excited to be dropping one of Dom Cummings’ favourite phrases into the journo’s ear – says that a “hard rain” is going to fall on universities that continue to be so “blasé” about executive pay increases while letting down students:

The days of the unaccountable ivory tower are over. Funding for universities will only come with the promise of major reform. We’re going to ensure degrees deliver good jobs and opportunities, that teaching is high quality, that universities offer good opportunities for people and help to drive up economic growth.

Top performers

The story identifies the London School of Science and Technology as the “worst performer in terms of graduate progression”, noting that the proportion of (full-time, first degree) students going on to graduate jobs or further education in the OfS outcomes dashboard was 39.7 per cent.

Its 2023/24 accounts say that the School’s strategy is to deliver world-class experiences and outcomes for students and employers, and that the Board of Governors receives a range of reports which have included key performance indicators, including a range of externally benchmarked metrics such as student retention, satisfaction, achievement and progression rates to employment.

The story does mention its head of provider “salary and consultancy” cost of £338,757, but doesn’t catch that Mr A J Zaidi became head of provider on 24 March 2023 – and prior to this, Mr S BA Zaidi was head of provider. In that same accounting period, BA Zaidi’s salary and consultancy was £437,500.

The accounts also show £4,256,227 paid out in dividends, and a pre-tax profit of £27m, generated from a turnover of £84m – largely via tuition fees (received after the relevant franchising fee) from its university partners, listed as the University of West London, Buckinghamshire New University, De Montfort University and Ravensbourne University London.

Threats and fines

Phillipson’s initiative comes hot on the heels of former universities minister Jo Johnson threatening to fine universities that pay their vice chancellors more than £150,000 without justification back in 2017.

Back then former Labour education minister Andrew Adonis – who himself had “named and shamed” vice chancellors on high pay in the Lords to no avail – said that those proposals, which went further than those apparently being floated by Phillipson, would “change nothing”.

The regulatory meat on the bone was eventually supplied by OfS’ inaugural chair Michael Barber, who announced later that year that the regulator would “bear down” on pay levels that looked “out of kilter” with an institution’s performance.

Early the following year, its new CEO Nicola Dandridge promised an annual report including basic salary, performance-related pay, pension contributions and other taxable and non-taxable benefits, details of the ratio between the head of institution’s pay and that of all other staff, and the number of senior staff paid more than £100,000.

There’s even a dedicated page on the OfS website which reminds us that Condition E3: Accountability includes a requirement in the accounts direction that there is a justification for the total remuneration package for the head of the provider and the provider’s most senior staff. Noting that it has a duty to take into account the value for money higher education providers offer for the public money they receive, it says it publishes analysis about senior staff pay at higher education providers, and invites its readers to examine its latest report on senior staff remuneration, which covers… the 2019-20 academic year. As ever, DK has you covered.

Since then other publications (like…The Times) and UCU have variously published detailed analyses of VC pay. In other words, even if shaming was the result of the naming, it’s not immediately clear that it’s had the impact of reducing (or even reducing the increases in) the remuneration of heads of provider.

Augar’s claws

Meanwhile in the FT, the chair of Theresa May’s Post-18 review of education and funding Phillip Augar says that OfS should have the ability to claw back pay from vice chancellors in the event of “financial catastrophe”.

Revealing that a handful of universities are getting “secret bail outs”, Augar canters through his charge sheet – a lacuna in regulation, weak corporate governance, the leveraging of balance sheets through asset sales and debt, and the international education strategy encouraging unsustainable (given the impact on immigration) expansion, and concludes that if inflation-linked fee plus grant increases are to be allowed, in return providers need to change:

If students pay more, universities should be upfront about course employment outcomes. The one-size-fits-all operating model needs to change with more collaboration, segmentation and differentiation between institutions. A commitment to life-long learning would restore a slump in adult education. Governance should be sharper.

Other than the employment outcomes thing – which sounds a lot like former universities minister Michelle Donelan’s routinely ignored stickering system – we’re not told how this all of the collaboration, segmentation, differentiation and life-long learning might be achieved.

If we over-simplify, you can either have some spare cash to do the nice things, a system of incentives to encourage doing them, or a system of regulatory minimums forcing them begrudgingly. Option 1 is off the table, Option 2 would require money, and Option 3 hardly looks like a banker.

But this banker has another idea up his sleeve. Not only does OfS need the skills to recognise financial mismanagement and the powers to prevent it, it should have the power to “clawback vice-chancellors’ pay in the event of financial catastrophe”, a deterrent that we are told has proved effective in financial services – another industry once “characterised by weak governance and light touch regulation”.

“A market cuts two ways”, says Augar:

Senior managers should be prepared to accept accountability for failure as well as the rewards of success.

It’s worth a brief look at Augar’s theory of change. Following the 2008 crash, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) introduced more robust rules under the Senior Managers and Certification Regime (SM&CR). These included specific requirements around “malus and clawback”, designed to hold individuals accountable and deter risky or unethical behaviour.

To be fair, Barclays, HSBC, and Lloyds have all used malus and clawback provisions in response to misconduct or regulatory findings – such as the foreign exchange scandal, LIBOR rigging, and poor conduct around PPI mis-selling.

For a while, bankers’ bonuses fell, and fixed pay rose – but banks started offering higher base salaries to offset limits on bonuses, maintaining overall pay levels in different forms. Since 2016 in particular, executive pay in banking has rebounded, particularly for top earners at major institutions – UK chief executives at leading banks now often earn £3m–£6m annually, the gaps between top executives and average bank employees remain huge, and UK banks argue they must stay competitive with Wall Street and Asian firms, where compensation is often much higher and less constrained.

Universities aren’t banks, but even if they were, it’s not at all clear that banking regulation would have the impact of reducing (or even reducing the increases in) the remuneration of heads of provider either.

As this piece on The Conversation (on Australian VC pay) explains, in a “real” market business, shareholders assert control by rewarding executives through salaries related to performance, creating an alignment of financial interests. But universities are quasi-market not-for-profit organisations, don’t have controlling owners/shareholders, and their governing councils don’t have the same financial self-interest as shareholders:

The vice-chancellor’s pay does not reduce their own profits. They might even prefer to pay their vice-chancellor over the odds because it makes their university look more prestigious. It also makes it less likely they’ll leave, saving them the bother of appointing a new one.

Ivory towers

The source in the Times story says that the days of the “unaccountable ivory tower” are over. But even if that was the actual intent, it’s the absence of imagination that really rankles.

Phillipson could withdraw funding from cheap-to-teach (and highly profitable) franchised Business qualifications taught from office blocks in major urban areas tomorrow if she wanted to.

And then in the mainstream part of the sector, as I noted here, in the Netherlands the “Wet normering topinkomens” act of 2013 was introduced to “combat excessive remuneration and severance payments” in institutions in the (semi)public sector.

The idea was to recognise a duality of character – striking a balance between the factors in play that are also reflected in wider legislative and governance arrangements. Under the WNT, salaries and severance are both standardised and made public, and those salary ceilings are indexed annually. That cap currently stands at about 200k Euros.

The country has been carefully phasing in the cap for a decade now – and I am struggling to find evidence that the sky has fallen in, that top talent is leaving the country, that its system isn’t being well led, or that its universities are falling behind on international comparisons.

There the Education (Governance) Amendment Act focuses on enhancing institutional oversight and stakeholder participation – it requires universities to empower bodies like staff and student councils, granting them significant advisory and approval rights on issues affecting educational and organizational aspects of the university.

Universities have to provide clear and accessible information about their governance structures, policies, and financial reports, making it easier for stakeholders and the public to hold them accountable. They are also obligated to implement mechanisms ensuring continuous quality improvement, including evaluations and demonstrable adjustments from students, staff, and external assessments.

The legislation also establishes tough standards on safeguarding integrity, covering conflict of interest, academic honesty, and ethical research conduct.

The point is that universities are neither private, nor public, but both. In that scenario, their vast budgets mean that the public interest, the student interest and the staff interest needs to be woven and embedded into the way they work.

The alternative is headline-grabbing re-announcements of crackdowns that won’t work because they’re designed in the mental model of a market that hasn’t worked either. If that doesn’t change inside 20 Great Smith St, this isn’t the last time I’ll be re-writing this article.