Hong Kong has insufficient resources to maintain eight equally funded world-class universities, according to the University Grants Committee.
The Higher Education Report 2002, chaired by Lord Sutherland, principal of the University of Edinburgh, calls for equal funding to be scrapped and for professors' salaries to be uncoupled from the civil service scale.
Instead, a small number of universities will be given a bigger share of support to turn them into world-class institutions. "There is not enough money to support eight world-class universities in Hong Kong. The international evidence is that competitiveness implies selectivity," Lord Sutherland said.
The proposals were well-received by the University of Hong Kong (HKU) and the Chinese University, which stand to gain the most. But courses with low student numbers and non-mainstream research may suffer.
All requests for funding from the grants committee will be assessed more vigorously and universities will be encouraged to look first to the private sector.
Removing salaries from the civil service scale signals the change of emphasis from rewarding seniority to recognising experience and ability. Under the current scale, the monthly salary for an assistant professor at HKU starts at about HK$48,000 (£4,300) with a ceiling of HK$80,700.
Under the new proposals, universities will have a lot more flexibility. "If Hong Kong's universities are to compete with overseas universities in recruiting outstanding staff, they should have the flexibility to decide staff salaries," Lord Sutherland said.
The move has been supported by departments that have lost academics to overseas institutions who offered better pay. "We had the financial resources to keep our academics but were legally constrained from doing so," said one department head.
But many academics fear that performance-related pay will destabilise the local jobs market and harm staff morale.
"It will adversely affect the nurturing of local academics since lots of money will be spent luring star lecturers from overseas," said Chan Che-wai, vice-chairman of the Federation of Hong Kong Higher Education Staff Associations.
Some 5,000 academics have signed a statement calling for the retention of the salary link.
Another proposal in the report suggests that universities should hire more staff on contracts.
A two-month consultation period follows, though many of the proposals could be enacted as early as 2004.