Under the proposals, set out today by journalist and economist Will Hutton, rank-and-file academics would also play a role in setting the salary of their vice-chancellor.
Mr Hutton, executive vice-chair of the Work Foundation think tank, was commissioned by the government last year to lead a review of fair pay in the public sector.
An interim report published in December revealed that universities had the highest pay differential between the top and bottom earners across the entire public sector, with vice-chancellors earning on average 15.35 times the salary of those at the bottom of the pay spine such as porters and cleaners. For Russell Group universities, the ratio rose to 19:1.
In the final report published today, Mr Hutton abandons the idea mooted previously of setting a maximum pay differential of 20:1, claiming it was “unfair” and could encourage public sector leaders to aim for the maximum ratio allowed.
Instead, he proposes a system under which chief executive and vice-chancellor pay is linked to performance, with a percentage of the top salary “at risk” if the incumbent does not achieve his or her professional targets.
Other senior executives would also have the chance to “opt in” to such a scheme.
“No pay system can be fair if it fails to reflect individual performance,” Mr Hutton said.
Under Mr Hutton’s proposals, the multiple of chief executive to workforce median pay would also be published each year and any changes to the differential explained.
The top salary would be set by an independent committee that would include representatives of the workforce, and the Senior Salaries Review Body would have powers to intervene if a particular organisation or sector was found to be paying exorbitant or rising salaries to its leader while pay rates further down the scale stagnated.
Mr Hutton said the proposal would ensure pay packets were “deserved, and understandable and reasonable” in size.
It would also signal an end to the “illogical” policy of benchmarking public sector pay against the salary of the prime minister.
Despite the decline in public investment in universities, Mr Hutton told Times Higher Education that the university sector could not consider itself exempt from his recommendations. “They are still part of the review. They are not state bodies, but they are public bodies. Universities award degrees, which are used as a public currency, and we expect them to mean something. The idea that universities are in any sense private is not right. They are public bodies in the true sense of the word.”
Chancellor George Osborne said he would give the report “careful consideration”.
In a statement, Universities UK says it “supports all measures which help ensure that universities are fair places to work”.
It adds that “all vice-chancellors will have challenging objectives set for them by their university’s governing body and their performance will be subject to scrutiny and an evaluation made accordingly. It should be recognised that there is genuine debate about the recognition of performance through pay with different governing bodies adopting different methods to ensure that incentives for the highest standards are effective.”