The Australian Government is to allocate almost A$250 million (£103.7 million) to universities rated for their teaching strengths rather than research.
Under the Government's new Learning and Teaching Performance Fund, universities that score highly on a range of seven indicators will receive additional grants of more than A$50 million next year, with a further A$82 million in 2007 and A$109 million the following year.
It is the first time the funding emphasis has switched from research to teaching. Brendan Nelson, the Education Minister, wants universities to lift the quality of their teaching and believes that linking millions of dollars to student outcomes will focus attention on the issue.
Under the scheme, 55 per cent of a university's total score is based on results from the annual course experience questionnaire that is completed by graduates four months after finishing their degrees. Graduates are surveyed on their beliefs about the generic skills they have obtained, the quality of the teaching they received and overall satisfaction with their courses.
A further 22 per cent of the score relies on statistical data from university surveys of graduate employment and continuing study outcomes.
The final 23 per cent is calculated by the Education Department from student dropout rates and the proportion who undertake higher degrees.
There was widespread consternation when The Australian published a list ranking each university according to a total its staff had calculated from the departmental scores for each indicator.
Mike Rann, Premier of South Australia, publicly criticised the University of Adelaide and the University of South Australia after they were ranked 36 and 37 out of the 38 institutions on the list. Mr Rann said he was disappointed that the two university vice-chancellors "were not out there defending their excellent institutions because they should be".
Critics of the new scheme point to flaws in the department's methodology, with some claiming that universities could manipulate the survey results to their own benefit. Others noted that the new money would go to universities already performing well, with nothing to help the rest improve their standards. Three of the top research institutions - the Australian National University and the universities of Melbourne and Queensland - were among the top six. This could mean the big three will not only receive a major slice of research funding but may now collect additional grants for teaching as well.