University managers and governing bodies must be "fair and equitable" when deciding severance payments for different groups of staff, the Higher Education Funding Council for England has said.
In a document that updates its 2002 guidance on severance payments for senior staff, Hefce says there should be no perception that poor performance is being rewarded. It also states that final-year salaries should not be inflated to boost pension benefits.
Those making payment decisions should be guided by the Nolan principles of standards in public life, which Hefce says "require both openness and accountability".
Hefce rules state that governing bodies must: exercise reasonable discretion in the use of public funds; ensure that such funds are applied only for the purposes intended; set high standards of financial propriety; and secure value for money.
The guidance document says: "When a severance arises following poor performance on the part of an individual, any payment should be proportionate and there should be no perception that poor performance is being rewarded. Final- year salaries should not be inflated ... to boost pension benefits."
The Hefce guidance also advises that the use of confidentiality agreements should be the exception, not the norm, because higher education institutions are subject to the Freedom of Information Act.
There can be no certainty that a confidentiality agreement would be "legally binding in the judgment of the Information Commissioner", it states.
However, in 2007, the Information Tribunal ruled that King's College, Cambridge did not have to disclose details of a severance package paid to Dame Judith Mayhew-Jonas.
Roger Salmon, former bursar at King's, whose FoI request for the details had been refused by the college, told the tribunal that its accounts referred to "aggregate and unidentified termination payments" of £770,000. He added that he believed "the great bulk" of this sum might relate to Dame Judith.
The tribunal said: "The commissioner agrees that there are strong legitimate interests in favour of disclosure. However ... the tribunal respectfully agrees that the rights of the data subject, in particular her claim to enjoy privacy ... outweighed those legitimate interests."
UCU UNHAPPY WITH V-C'S EXIT PACKAGE
The University and College Union has criticised the arrangements made for Stephen Hill's departure as vice-chancellor of Royal Holloway, University of London.
Professor Hill will step down at the end of July but will continue to receive his full salary during a two-year sabbatical before he retires in 2011.
During this period, he will "pursue personal research interests, alongside representative roles and special projects or consultancies for the college", the university said.
Sally Hunt, general secretary of the UCU, said: "The recent revelations over vice-chancellors' huge pay rises did little to remove the feeling of one rule for those in charge and one for the rest of the staff.
"We trust that the generous package agreed at Royal Holloway is not a one-off and that similar severance deals will be afforded to all staff."
• The UK's longest-serving vice-chancellor, Michael Sterling, retired from the University of Birmingham this week.
He handed over the reins to David Eastwood (left), who joins Birmingham on 13 April after two and a half years as the chief executive of the Higher Education Funding Council for England.
Professor Sterling has been a vice-chancellor for more than 19 years, spending the last eight of those at Birmingham after 11 years in charge at Brunel University.
He was also chair of the Russell Group of 20 research-intensive universities during a period that saw the introduction of tuition fees.
He said that he had attended 160 degree ceremonies and congratulated more than 50,000 graduates during his tenure at Birmingham.
One of his final duties at the university was to sit for an official portrait by Paul Brason, winner of the 1998 Ondaatje Prize for portraiture.
The university said: "Seven sittings were required to fully capture Professor Sterling's character."