Pay may depend on profit

April 19, 1996

Profit-related pay was seized on by more than 80 universities this week as a formula which could save jobs while answering academics' dem-ands for above-inflation salary rises.

A "significant number" of universities say they cannot afford to give academics any rise this year, according to the Universities and Colleges Employers Association, which hosted two seminars run by City accountants Price Waterhouse.

Profit-related pay is a Government initiative linking payroll costs to profits. A maximum 20 per cent of pay is then tax-exempt. Tax expert Andy Morris of Price Waterhouse said the schemes, which offered "enormous savings", could become widespread in higher education. One medium-sized university was planning a scheme which provided a saving of Pounds 2 million in the first year. This was more than the university's budget cut and would offset job losses.

"Profit-related pay schemes give pay rises and produce savings," Mr Morris said. "Higher education is only just starting to think about the idea but I guess there will be about 12 schemes in operation by July this year and up to 40 by next year."

If a university found itself in deficit its employees would not necessarily lose their profit-related pay. Steve Rouse of UCEA said the current pay negotiations were a balance between pay rises and job losses. "The ability to pay salary rises is much more variable than usual this year and a significant number of institutions have indicated that they cannot afford a rise at all," he said. "I cannot rule out the prospect of some universities not paying a rise this year."

An anonymous poll conducted this week by The THES found institutions were budgeting for rises ranging from 0 per cent to 3 per cent. Many anticipated job losses. In one "old" university, for instance, a 1.45 per cent pay rise was expected to lead to 82 job cuts. A number of institutions indicated they would rather reduce the number of posts than the level of pay.

Profit-related pay schemes now cover 2.5 million private sector employees, costing the Treasury Pounds 1 billion a year in tax relief. According to Price Waterhouse, the tax savings can equal 5 per cent of payroll costs.

Mr Morris said there were two potential hurdles for universities to clear to avoid falling foul of Government rules. The first was to ensure universities were not "excluded employers" which meant all organisations under central or local government control.

The second was to establish that universities were businesses run "with a view to profit", which could be translated as surplus, and that teaching students constituted trading. Neither was insurmountable but the constitutions of each institution needed to be carefully examined. Universities could retain their charitable status, according to Price Waterhouse, which has raised this with the Inland Revenue.

Lecturers' union Natfhe said the schemes would be superficially attractive but would not achieve restoration of academic salaries in the long run. The Association of University Teachers said some moral objections would be raised since the schemes were a regressive tax. Higher rate taxpayers would incur more tax relief. However, the idea could secure better pay deals for members.

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