Chief Executive’s pay: a provocation

Lord Adonis has provoked a discussion on Vice-Chancellors’ pay.  Follow his tweets and you’ll see that he moves from the issue of tuition fees to the twin issues of the length of degree courses (which unwisely he linked to long summer holidays for academic staff) and VC’s pay.  There have been comprehensive rebuttals of the holidays issue – (see the Plashing Vole here) but not so obviously on VC’s pay.

This is not a defence of Vice-Chancellor’s pay.  This is not even an attempt to explain all the different facets that make up the reason why Vice-Chancellors pay has increased (one issue – the transfer market for ‘successful’ VCs  – I’ve touched on before).  I just want to touch on an aspect of the change:  that universities are now in a complex ‘market’ situation, and you can start to understand why remuneration committees are getting excitable about recruiting or retaining good Vice-Chancellors.

Universities have always competed for students, staff and resources.  Oxford and Cambridge Colleges built new accommodation blocks in the 18th Century to attract the sons of nobility.  Our central clearing house for admissions is a testament to the competition for the best applicants, even when demand severely outstripped supply.  The rhetoric around these markets has increased however.   Universities have struggled in the past, and the history of mergers hints at those past difficulties.  Starting with the talk of avalanches, we now see market forces at play – the VC at Huddersfield has launched a voluntary severance scheme citing:

“Once again the higher education sector faces many challenges – private providers are being encouraged to enter the marketplace, there is uncertainty about fees and our competitors are being increasingly aggressive in their student recruitment tactics. All this must influence how we shape our strategy for the next few years.

“To ensure that we maintain and develop our place within the market we have begun a process of closely analysing the provision we offer and this will continue into the future.

Different generations will no doubt understand aggressive student recruitment tactics differently; the first prospectus was probably seen as being a bit pushy, certainly De Montfort’s first TV ad was.  The point is that universities’ position as a safe public sector organisation is now under threat, even to the point of ‘market exit’.

One core argument why private sector pay is higher than in the public sector is risk.  In the private sector staff are hired and fired more easily, companies close or are taken over.  As a company can be more volatile, senior managers take greater risks, and should be rewarded.   Universities are not businesses, and comparisons are invidious, but, just for fun, here’s a quick comparison.

RM Plc

Let’s look at RM plc; a ‘major provider of resources, software and services to the education sector’.  RM has had some difficult years as they’ve transitioned out of providing hardware for schools into other services.  RM is heavily dependent on education spending, the bulk of which comes from public sources.  It employs 1800 people of whom 600 are based in India.    Its revenue for the year to November 2016 was £167.6m.

RM

RM’s remuneration policy is set out in its annual report.

The Policy is designed to attract, retain and motivate Directors and senior employees, both to achieve the Group’s business objectives and to deliver outstanding shareholder returns. To achieve this, RM’s Remuneration Policy aims to provide ‘median’ reward compared to comparator groups when acceptable levels of performance have been delivered. For the achievement of outstanding performance, it aims to deliver ‘upper quartile’ remuneration compared to comparator groups.

Helpfully the policy also says it avoids excessive risk taking by executives just to try and maximise their own personal returns.  The chief executive received total remuneration of £655k in the year to Nov 2016 (this includes shares – which accounts for why the sum is significantly down on the total of £1246k in 2015 when he got £749k worth of shares).

University of Bath

The University of Bath employed 2800 staff in the year ending July 2016, and had an income of £263 million.  Clearly it is also dependent on direct and indirect public funding for education and research, but its income has been going up each year, and it is exceeding its targets for surplus generation.

bath

We’ve all seen that the Vice-Chancellor got paid £451k in the year to July 2016, and Lord Adonis pointed out that benefits in kind and external income probably carried that to over £500k.  Although Bath is a successful university, no doubt the attention the news got is because it is not one of ‘leading’ universities (©Russell Group).

The University of Bath isn’t a company, and there’s no suggestion that you could interchange its chief executive with that of RM Plc.  But the chap at RM got paid £200k more in 2016 for running a company with 1000 fewer staff and £100m less revenue/income than Bath.

Greed

Lord Adonis rounded on the University of Bath in the House of Lords.  He noted that Bath was a ‘mid-ranking university’ and as the bulk of its funds came directly or indirectly from Government, they should have a say in the pay levels.

… the highly paid should set an example, particularly at a time of pay restraint. The only example the vice-chancellor of the University of Bath is setting to her staff is one of greed.

If the VC at Bath getting £451k is ‘greed’, then why isn’t the same tag applied to the CEO at RM?  Maybe Lord Adonis would think it is, but I think that’s unlikely.  Lord Adonis is a board member at RM and sits on the remuneration committee.  You’d have to assume that he’s signed up to their remuneration policy, and doesn’t think that the CEO getting £655k – a large part coming from school budgets – is setting a bad example.

CEO pay is a general problem.  It cannot be justifiable that their work is valued so much more highly than the work of others in their organisations.  That’s not to say that  there shouldn’t be something of a differential as greater responsibilities are taken on, but not at so steep a gradient.  Universities should push back against the corporate model, no doubt advocated by governors with experience of company boards, against the inflated wages for the CEO/VC.

 

 

 

 

 

 

 

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