Deferring pay would ‘create consequences for vice-chancellors’

A revived proposal to defer part of university leaders’ pay until their term in office is over has been met with a mixed reception, with some arguing it would incentivise long-term decision-making but others suggesting that “private-sector management models” would not work for the sector.

Last week’s report from the House of Commons’ Education Select Committee recommended that the government should work with the higher education sector to devise a scheme that would see part of the pay of universities’ senior leaders only paid out once they finish the job.

The suggestion was originally made by Philip Augar in his 2019 review of the sector and mirrors a policy that already exists in the financial services world.

Appearing in front of the committee as part of its inquiry, Augar argued that nobody was “really on the line” if a university were to fail and the proposal would introduce more accountability. 

Helen Hayes, chair of the education select committee, told Times Higher Education the group came to a similar conclusion: “At the moment there is no peril for senior leaders in universities who make poor financial decisions that drive a university to the brink of insolvency. They can walk away with no consequence at all.”

She said decisions about things like franchising and borrowing “perhaps haven’t been undertaken…with an appropriately comprehensive assessment of all of the risks to the future of the institution”. 

Some welcomed the committee’s recommendation, including the University and College Union (UCU), which has long criticised the substantial sums vice-chancellors are paid, particularly in light of widespread job cuts in recent years. 

“Withholding some of their overinflated pay packets so that they, instead of staff and students, can be held to account for their failures would be a good start in meaningfully regulating the sector,” UCU president Jo Grady said of the proposal. 

Chris Husbands, director of Higher Futures and former vice-chancellor of Sheffield Hallam University, agreed that the idea “makes good sense”.

“Universities are complex, multi-objective organisations, which means that, unlike in many private sector organisations, it is more difficult to assess short-term performance. 

“Narrow short-term measures of performance can incentivise short-term leadership actions when the longer-term focus is needed.”

But others questioned how well the existing policy, geared towards bankers, would translate to universities.

There are “big differences between pay in the financial services and higher education sectors”, said Bob Rabone, former chair of the British Universities Finance Directors Group and a senior adviser in the Halpin governance team at Huron, who emphasised that he wasn’t opposed to the proposal, but was unsure of the “impact it could have”.  

The rules were first introduced for bankers following the 2008 financial crash amid concerns that excessive risk-taking had contributed to the crisis. 

Under the latest version of the rules, bankers who earn over £660,000 in bonuses can have them deferred for at least four years. Half of the bonus must be awarded in shares, further incentivising long-term thinking. 

However, nearly all vice-chancellors are paid less, in total, than £660,000, while bonuses make up a small proportion of their pay package in comparison with bankers, Rabone pointed out. Universities are unable to issue shares. 

Rabone also questioned the four-year deferment period. “Whilst it may be reasonable to expect vice-chancellor performance to have an impact beyond their term, it could be seen to be unreasonable for any deferred bonuses to be dependent upon management or events which take place long after their departure.”

Steven Jones, professor of higher education at the University of Manchester, was sceptical about whether the policy would result in any meaningful change. 

“Some governing body chairs have been pushing on this for some time, but that’s a reflection of their own business backgrounds as much as anything else,” he said. 

“There’s still remarkably little willingness to consider that the most appropriate people to lead universities may be motivated less by financial incentives than by educational and civic values, and by public service.

“There’s a reluctance among those in power to accept that market-driven reforms have largely failed, and that doubling down on private-sector management models may actually make things worse.”

Hayes added that the select committee may consider looking at university governance in more detail in the future, including “the range of expertise that is on a university council”.

helen.packer@timeshighereducation.com