Performance-related pay is way forward for sector, says UUK review

Sir Ian Diamond’s efficiencies report endorses the shift from incremental pay rises to service-related rewards

February 26, 2015

Source: Alamy

Show time: pay growth in higher education has been almost 20 per cent lower than in the public sector since 2009

Automatic annual pay rises to recognise increased experience should be phased out in favour of rewards linked to performance, a major review of university efficiency requested by the Treasury says.

Addressing the issue of “incremental pay”, the Universities UK review led by Sir Ian Diamond, principal and vice-chancellor of the University of Aberdeen, calls for a “move towards different reward frameworks and incentives” for staff.

Sir Ian, who published his first review on university efficiency in September 2011, was asked by the Treasury to look again at the subject in 2013 by focusing on six areas: personnel, university estates, open data, research costs, asset sharing and shared services and procurement.

The Treasury’s request followed the announcement by the chancellor in December 2013 of the abolition of student number controls in 2015, with Sir Ian’s potential efficiencies helping to offset the policy’s £700 million annual estimated cost.

In his latest report, published on 26 February and titled Efficiency, Effectiveness and Value for Money, Sir Ian sets out a “new agenda” for university efficiency as well as highlighting areas that have yielded more than £1 billion of savings in the past three years. However, his recommendations over incremental pay, in which salaries rise each year within certain pay bands, are likely to attract the most attention.

Only third of staff get increments

Incremental pay rises, also known as “service-related pay progression”, were worth 3 per cent of salary last year on top of the nationally agreed 1 per cent rise, according to the Universities and Colleges Employers Association. However, Sir Ian’s report notes how only 36 per cent of staff now receive increments, with significantly fewer staff receiving the pay rises than previously.

About half the institutions offering increments have made or plan to make “all progression subject to evaluation of satisfactory performance”, says the report. With the sector moving to “nuanced and responsive modes of pay and reward”, Sir Ian recommends the “direction of travel regarding service-related pay progression and performance management is maintained”.

The report also explains that pay growth in higher education has been almost 20 per cent lower than in the public sector since 2009, rising by 5.5 per cent compared with 6.8 per cent respectively.

Incomes in the private sector have also grown faster than in higher education, rising by 6.6 per cent since 2009 with inflation increasing by 17.2 per cent in this period.

The report also defends the pay rises awarded to vice-chancellors in recent years, stating that “average increases for heads of institution have remained in line with changes for the lowest paid and with average pay increases in the sector”.

It says that pay inequality is roughly the same as in 2002, with the pay ratio between the average vice-chancellor’s salary and the lowest point of the 51-point national pay scale remaining at about 15 or 16-to-1 over this period.

The report also outlines a number of “high-level commitments” regarding other areas of potential savings, which will be used by UUK’s various partners to draw up plans for further efficiencies by May.

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