Universities are to be ordered to clamp down on vice-chancellors' pay following an investigation triggered by The THES .
Payoffs for poorly performing vice-chancellors will be abolished along with the generous pension enhancements received by those taking early retirement.
The English funding council will also recommend that former heads of institutions are not given consultancy work.
The new guidelines will remind internal auditors that they should examine severance arrangements and ask external auditors to ensure that such arrangements are tested against new guidelines.
This week, Sir Howard Newby, chief executive of the Higher Education Funding Council for England, sent a letter to the chairs of the governing bodies of all universities and colleges. He wrote: "The public rightly expects that bodies that receive large sums of public money to provide a public service should ensure that the pay of their chief executive is proportionate. It is part of my role to ensure that the public funds we allocate to universities and colleges are not being misused."
The new rules were drawn up after ministers expressed concern about the large pay rises received by vice-chancellors, which were revealed by The THES . Sir Howard wrote to chairs of the governing bodies at 17 institutions where the vice-chancellor's income had apparently increased by more than 15 per cent and asked them to account for the increase. The new rules aim to close the loopholes that allowed these payments.
The instruction to avoid contractual entitlements to apparently excessive payments could be interpreted as a reference to the payoff taken by Sir John Daniel, former vice-chancellor of the Open University. He doubled his income to £309,000 in his final year.
The rule that public money should not be used to reward loyalty could be directed at the payment received by Sir John Kingman, vice-chancellor of the University of Bristol for 16 years. Sir John doubled his income to £252,000, including £122,000 as compensation for loss of office. He is now chairman of the Statistics Commission and director of the Isaac Newton Institute for Mathematical Sciences at the University of Cambridge.
The consultancy clause may refer to the experience of Frank Gould, former vice-chancellor of the University of East London. Professor Gould oversaw events that led to UEL being placed under emergency supervision by the funding council. On his early retirement, he was employed on a consultancy basis for two years at £10,000 a year. A UEL spokesman told The THES earlier this year: "Following a review of requirements, it has been decided the consultancy is no longer needed."
In his letter, Sir Howard also stressed that "it is important that institutions take care to ensure that the presentation in their accountsI is clear, accurate and unambiguous".
The THES was unable to distinguish between the payments made to Lord Oxburgh, former rector of Imperial College, London, and those to his successor, Sir Richard Sykes. Between them, including a three-month overlap, they shared £242,000, placing the college fourth in The THES league table of vice-chancellors' pay.
A spokesman for the Department for Education and Skills, which launched the investigation into severance payments earlier this year, said: "We are pleased that Hefce has looked into the pay increases and is issuing revised guidance. Pay remains a matter for governing bodies, but it is right that Hefce continues to monitor the situation."