Sky-high v-c pay ‘a failure of governance’

Governments must step in because remuneration committees cannot resist upward pressure on executive salaries, researchers argue

December 2, 2020
Source: iStock

Soaring vice-chancellors’ salaries in Australia and the UK reflect a “clear failure of university governance” that demands political intervention, researchers say.

A study has found that the pay gap between Australian academics and their bosses mushroomed after the abolition of the Academic Salaries Tribunal, whose recommendations had helped keep vice-chancellors’ remuneration in check.

And while universities insist that their chief executives’ salaries are determined independently, only a minority of institutions formally exclude vice-chancellors from meetings of the governing council subcommittees that make these decisions.

The situation is arguably worse in the UK where, in 2018, 95 per cent of vice-chancellors were either members of the committees that set their salaries or entitled to attend the meetings. Even after a voluntary code of conduct was introduced to prevent this, 81 per cent of universities still permitted their chief executives to attend meetings with nine letting them vote.

The study, published in the journal Higher Education Research and Development, concludes that these conflicts of interest – which would not be countenanced in most large corporations – are undermining mechanisms to rein in senior executive salaries.

Another problem is that the governance structures that have responsibility for controlling executive pay offer “no effective counter to vice-chancellors’ powers”, argued co-author Julie Rowlands.

“In corporations you have principals, the shareholders, who play an active role,” said Dr Rowlands, an education sociologist at Deakin University who conducted the research with Rebecca Boden from Tampere University in Finland. “They campaign at annual general meetings. They influence things like standards for good governance. There is no equivalent to that in universities.”

Current arrangements are not working “in either universities’ or the public interest”, says the paper, which suggests mechanisms to limit university bosses’ earnings. “Governments could, for instance, set fixed ratios between vice-chancellors’ remuneration and mean academic salaries.”

Australian history suggests this can work, the paper argues, citing 1980s evidence that the federal government had penalised universities that paid their vice-chancellors more than the recommended amounts by deducting the overpayments from institutional recurrent grants.

But after the tribunal was disbanded in the late 1980s, vice-chancellors’ salaries – which were typically about triple the amounts paid to junior academics in 1985 – soared to between eight and 16 times lecturers’ pay by 2018.

Dr Rowlands said that the paper was thought to be the first to address vice-chancellors’ earnings from a governance perspective. “It’s usually considered as a moral or ethical issue,” she said.

She argued that governing council members – who were often paid nothing or nominal fees, and usually lacked academic backgrounds – were simply not equipped to resist the upward pressure on remuneration. Indeed, many encouraged it.

“There’s a lot of prestige associated with having a well-paid vice-chancellor,” she said. “Council members think it contributes to the prestige of the university, and the most valuable commodity of a university is prestige.”

Pressure also came from institutions benchmarking their chief executives’ pay levels against each other, or engaging in “remuneration tournaments” where the packages of other senior executives pushed vice-chancellors’ pay even higher. Yet no study had found convincing evidence linking vice-chancellors’ pay with the quality of their performance.

Dr Rowlands said that Australian vice-chancellors were paid better than their British peers partly because Australia had higher wages in general, and partly because the larger number of institutions made benchmarking more difficult in the UK.

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Reader's comments (7)

Quite a few Australian VCs have taken pay cuts to come snd work in the U.K. but Brits go to Australia for the cash.
The suggestion that corporations have better systems and processes for this does not stand up to scrutiny. Notwithstanding the presence of shareholders, there is plenty of evidence that CEO salaries have had accelerated growth and could be critiqued in exactly the same way as the article purports to do for VC salaries.
We don't argue that the systems in the corporate sector are better or worse - only that universities have adopted the same agency-based systems. I agree that they don't work in the private sector either!
Sky high salaries for VCs are a massive reputational risk for individual institutions and the sector as a whole, in the COVID recovery phase all eyes will be on all forms of excess and blatantly unjust pay conditions of this kind.
The research confirms what many have thought for some years, but by focusing solely on VC salaries does it miss another important aspect of what's happened: the rise in salaries of senior management - what one Oxbridge college bursar has called VCs 'costly helpers'? For example, at the University of Manchester, the number of staff earning over £100k rose by 50% in the 2-3 years after £9k tuition fees boosted the university's income from £750m to around £1bn.
I analyzed this in detail a number of years ago .... ... I believe this was reported in the THE plus various other media outlets. The main conclusions are: (a) UK vice chancellors and US public university presidents are paid comparably based upon the research quality of their faculty and the size of their student body and (b) Australian vice chancellors are generally significantly overpaid based upon the research quality and size of their institution. This is particularly the case for what are known as the G08 institutions. You can also see a more complete discussion of Australian Universities and their governance and strategy in a book with me and Grahame Dowling: (The Strategies of Australia’s Universities)
All the more troubling when they take the pay but not the responsibility. Take a look at Murdoch University this week: VC Eeva Leinonen is rumoured to have ducked off on an early Christmas Break while at the same time sending academics in key STEM disciplines of Chem, Physics, Maths, Stats and Engineering a letter telling them these degrees no longer exist at Murdoch and their research careers are effectively over. If you are paid to make a pretty key decisions like axing STEM at least be on hand to talk about it.


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