How many nurses is a university vice-chancellor worth?

Blog posts

12 Sep 2017

Duncan Brown

Duncan Brown, Head of HR Consultancy

On last week’s BBC Radio 4 Any Questions, this particular query from audience member Christine Knox attracted the loudest applause of the evening. Host Jonathan Dimbleby elaborated that a newly qualified nurse earns £23,000 and vice-chancellors (VCs) have on average a base pay of £234,000.  Which makes the answer about 10.

The panellists, including ex-education minister Lord Adonis – who helped to introduce reforms increasing the ‘marketisation’ of UK higher education (HE) and the £9,000 per annum student fees which have helped to encourage more private-sector style rewards – duly repeated the  usual arguments against high pay and ‘fat cat’ salaries. These arguments run from such salary levels being immoral and suggestions that pay differentials have become far too wide in this country, to ‘how can VCs possibly be worth more than the prime ministers’ £150,000 salary’, ‘there is no relationship between VC pay and university performance’, and calls that these institutions have become ‘self-determining empires’ and so the sector needs much better (pay) regulation.

Minister for Universities and Science, Jo Johnson, had in fact the previous day announced at the Universities UK annual conference that the new sector regulator, the Office for Students, will take a series of measures to curb excessive pay. These include making universities publish the number of staff who earn over £100,000 a year, and seek approval and provide a ‘clear justification’ for paying any employee over £150,000, or risk a fine. This repeats aspects of the approach we have seen employed across the civil service.

Comparing fairly unique jobs such as VCs and nurses across different sectors to determine the appropriateness (or in this case inappropriateness) of pay levels is notoriously difficult. IES has recently reviewed the methods used by the independent pay review bodies to try to assess pay competitiveness for doctors and dentists and various Armed Forces personnel. It is not a straightforward task and generally requires triangulation between different sources: similar types of work and contexts; similar jobs overseas; internal as well as external comparisons; and much more.

Using arbitrary benchmarks such as the prime minister’s salary to assess and control the pay of VCs or any other roles is, as the Hutton Fair Pay Review found in 2011, generally an ill-advised, inaccurate and inflexible approach. This is especially true given that, as Hutton pointed out, the value of their benefits (including board and lodging at 10 Downing Street) takes the total value of their package to a much higher amount.

Jo Johnson did recognise that ‘many of our universities are large and complex organisations, requiring highly skilled individuals to run them effectively. Some will be competing for managerial talent in a global market’.

International comparisons carried out by IES for individual universities suggest that UK pay levels for institutional heads are still not only behind equivalent US public- and private-college remuneration levels, but also those in countries such as South Africa and Australia, where we have seen UK VCs recruited from recently.  Our internal client analysis shows the median pay of institution heads in the latter, for example, to be over £350,000.

What about the private sector then? According to E-reward, the chief executive of an average FTSE 250 company earns over £300,000 in base salary and another £200,000 in bonuses. According to the Evening Standard’s Business editor Jim Armitage last week:

‘I don’t get the fuss about university bosses’ pay. Colleges are bigger and more complicated than most companies, so an average salary of £234,000 for the person in charge hardly seems egregious. The vice-chancellor of Oxford runs a budget of £1.4 billion. Her £350,000 sounds about right. Critics carp that unis are funded largely by taxpayers, but the same can be said for public sector contractors like Serco or G4S, where CEO pay runs to the millions’.

So, what about the arguments of widening differentials and inequality? How many lecturers is a VC worth, is probably a fairer and more relevant question to ask. Despite increasing marginally faster in recent years than general academics’ pay, median VC pay is still 6.4 times average earnings in the sector, according to the University and Colleges Employers’ Association (UCEA) figures. This is slightly above the charity sector, but, as recent internal IES client analysis discovered, this compares with an equivalent figure of over 150 times amongst the UK’s largest quoted companies. Even in local government the ratio is 10 times.

The gap between nurses and other NHS staff and their top-paid managers and consultants is just over 12 times. Although all of the Any Questions panellists chose to focus on the VC aspect of the question, surely the bigger issue which it cleverly linked to was about the low level of nurses’ pay and the continuance of the one per cent public sector pay cap, which is seeing their pay fall progressively further behind that of other graduate roles in the private sector. Never mind VCs, is it really fair for example, that these nurses earn less than half the average earnings of a tube driver? No wonder nurses have been at the heart of the trade unions’ ‘scrap the cap’ campaign (covered in an earlier IES blog).

Will Jo Johnson’s proposed remedy of stronger regulation have any impact on VC pay? The universities that IES has worked with already have independent remuneration committees along private sector lines, and there are already good examples in HE of (voluntary) pay disclosure. Southampton Solent for example, tells us that its vice-chancellor professor Baldwin earns a total of £259,000. His salary is ‘set by the University’s Remuneration Committee…consisting of three independent members of the Board of Governors and a co-opted member, chaired by the Vice-Chair of the Board’. They ‘take account of any pay award agreed nationally for university staff, affordability for the University and achievement of his objectives’.

The government’s announcement the previous week of further ‘world-leading’ corporate governance reforms in the private sector, including reporting internal pay ratios, also raises the question as to whether this is the best model for HE to be following. Greater transparency has not been particularly associated with top pay restraint in the private sector. And, while IES analysis for university clients has shown very little relationship between the levels of VC pay and commonly used metrics in the sector (such as the institution’s position in The Guardian’s university’s league table) analysis by the High Pay Centre shows an equally weak relationship between pay and performance in the private sector, despite the wider use of higher-paying and supposedly performance-related bonus and incentive schemes there.

There is surely a wider inconsistency in the government’s approach here. On the one hand supporting market reforms and the removal of a national pay structure for professors and senior staff in the sector more than ten years ago, of the type that ensures control and consistency in nursing and other staff pay in the NHS, while on the other hand bemoaning the greater variability in pay and growth in differentials that inevitably results. If you want to control top pay in HE or any other sector, then guess what, the best way to do it is to have national pay structures, controls and caps, which the HE sector has retained for lecturers and lower-paid staff.

This inconsistency has been evident in public sector pay policy more generally where traditional elements of the sector’s employment ‘deal’ which enable employers to compete with the private sector – good pensions, regular pay progression, flexible working, better job security, etc – are being progressively worsened, yet bonuses and other typical components of private sector employment are discouraged or prevented. Should the deal in HE and the public sector shift further towards the private sector or not? Government pay policy has been schizophrenic and inconsistent on this.

Where Jo Johnson clearly was correct was in stressing ‘it is important to remember that universities are generally still charities with a not-for-profit public service mission and that, when it comes to VC remuneration, finding the right benchmarks is essential’. I generally find the universities and their remuneration committees that IES works with to be highly aware of their charitable and community roles, with at least one, for example, having the chair of their students’ union committee represented. As the existing senior remuneration guidelines from the Committee of University Chairs point out, ‘the proper remuneration of all staff, especially the VC and his/her immediate team, is an important part of ensuring institutional sustainability and protecting the reputation of the institution’.

This positioning of universities somewhere between the private, public and charitable sectors makes defining and communicating the remuneration strategy of each institution especially vital for remuneration committees and HR leaders. The markets they compare with; the stance in these markets; how they progress pay; whether and how they reward performance; the level and management of internal pay relativities; and the emphasis and types of benefits are all essential components. They should not need government or regulator-enforced codes to force them to do this, and IES has helped a number of universities and colleges to develop tailored reward strategies.

The sectors’ somewhat unique position also affords opportunities to introduce hybrid approaches and innovations, such as the Success Sharing recognition scheme which IES developed with Kingston University, unashamedly modelled on the John Lewis’ profit sharing scheme (but with lower payment opportunities) and designed to support high performance in terms of conviction as well as commerciality.

Nurses may not, in the end, be the best comparator for assessing if VC pay levels are too high, or indeed in reverse, pay in nursing too low. But as in the private sector, there are examples of good and bad senior remuneration practice and the key issue is, as Jo Johnson put it, how institutions and the sector ‘ensure that vice-chancellor pay levels are fair and justified, and that governance arrangements around remuneration are up to date’. Every university, remuneration committee chair and HR leader needs to be able to demonstrate that, in policy and in practice.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.