Universities that pay their staff well are likely to outperform their rivals and score highly in national league tables, while those with a wide disparity between vice-chancellor and rank-and-file pay are likely to sink down the rankings.
These are the conclusions of a study by academics at the University of Exeter, which identifies a close correlation between staff pay and institutional performance.
In a document detailing the preliminary findings of the research, the authors state that "group performance is highest when all group members, leaders and followers alike, are rewarded equally for success. This is because pay sends out strong signals about shared identity - a feeling that all members are 'in the same boat'."
The study was led by Alex Haslam, professor of social and organisational psychology at Exeter, and forms part of a wider examination of the relationship between pay and institutional performance.
The researchers plotted data on vice-chancellors' pay and average academic remuneration since 1998, taken from the Times Higher Education annual pay survey, against institutions' performance in The Times Good University Guide rankings for the same period.
They state that vice-chancellors' pay is a good predictor of future institutional performance: the higher the wage, the better the university tends to do in the rankings.
Performance was also found to be a good indicator of future executive pay, despite other sectors, such as banking, showing little correlation between the two. However, the strongest link was between future performance and rank-and-file pay.
Professor Haslam said the findings suggest that "you can't build a university on the cheap".
"If you want to do well in the league tables, pay your staff well," he advised. "If vice-chancellors get the rewards and staff do not, that sets in chain a cycle that leads to future underperformance."
The findings come at a time of pay unrest in the sector, with the last of the campus unions reluctantly dropping opposition to a 0.5 per cent pay offer earlier this month.
Sally Hunt, general secretary of the University and College Union, said the conclusion that it was a mistake to reward vice-chancellors handsomely but not staff "might be a blow for some vice-chancellors' egos, but does not surprise us in the slightest".
According to figures in the THE 2009 pay survey, Queen Mary, University of London pays academics among the highest average salaries in the sector - £48,947 a year across all grades in 2007-08, the most recent year for which data are available.
Simon Gaskell, principal of Queen Mary, said that "the lifeblood of a successful university is its staff", adding that the institution "believes in investing in and rewarding success".
At the other end of the scale, Middlesex University has one of the lowest average salaries in the sector - £36,806 a year in 2007-08. It paid Michael Driscoll, its vice-chancellor, £197,000 including benefits. However, a spokeswoman for Middlesex said the university had "no trouble recruiting good-quality staff at the levels of pay we offer" and had a "very low" turnover of workers.
The Universities and Colleges Employers Association said that recent increases in remuneration for vice-chancellors had been in line with overall staff pay rises.
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