Universities awaiting certainty from senior pay code of practice

Out-Law Analysis | 16 May 2018 | 3:20 pm | 3 min. read

ANALYSIS: UK universities are keen to comply with a new code of practice on senior pay – but are craving clarity about how to calculate pay ratios and put high salaries in a commercial context.

Respondents to a recent survey by Pinsent Masons, the law firm behind Out-Law.com, have overwhelmingly indicated their intention to comply with the remuneration code currently under development by the Committee of University Chairs (CUC), although compliance will be voluntary. Final guidance is expected in time for the coming academic year, but our research shows that there is plenty that institutions can be doing now to prepare for more transparency around, and more scrutiny of, their pay arrangements.

According to Times Higher Education, vice-chancellors (VCs) of the 24 large, research-orientated UK universities that make up the Russell Group were paid an average of nearly £332,000 over the last academic year; increasing to over £355,000 when pension contributions were included. Universities that commit to the CUC code will be expected to publish the ratio of vice-chancellor pay to median earnings, and be "prepared to justify" ratios outside an average of about 1:8.

But our research shows that many universities are publishing VC pay already, even if they are not doing this in a standard format or properly reporting on the link between pay and performance. The planned code will apply to the pay of all senior staff, and transparency over this is going to be a dramatic change for institutions. Proper preparation to report on this data and put it in its proper context is essential if universities wish to avoid the potential for significant reputational risk.

What's in the code?

At a minimum, universities that adopt the code will be required to publish the ratio of VC (or equivalent) pay to median earnings, expressed as a multiple. They may also publish other pay multiples if they choose to do so. The draft code gives examples including the ratio of VC pay to median academic salary, median professorial salary or median professional staff salary; but institutions could also choose to publish ratios calculated with reference to mean salaries, keeping them consistent with the gender pay gap reporting regime.

Only one of the respondents to our survey currently publishes the ratio of VC pay to median earnings, although most intend to do so once the code of practice comes into force despite anecdotal feedback that this is not universally seen as a great way of improving pay transparency. However, it is clear from the responses that the sector is craving clarity on how to calculate this figure, including around what aspects of remuneration to include.

Responses were mixed on institutions' intentions to publish other pay multiples, with some saying that they would be guided by the final code. However, unless there is certainty as to how these figures are to be calculated it is unlikely that institutions will do this willingly, as it will be hard to compare like with like. A parallel can be drawn here with the way in which large UK businesses approached the introduction of gender pay gap reporting in April 2018. The exclusion of, for example, partners from the data reported by professional services firms led many to respond that the figures were skewed.

The code will also require universities to publish their definition of the term "senior post holder", and to provide a "clear, meaningful explanation" of their approach to the pay of these individuals in a place that is "readily accessible". Our research shows that a significant majority are still to develop and publish such a definition. This will be a step change for institutions, and clear guidance will be needed from the CUC to ensure that all institutions are applying the same criteria.

Universities are, however, making significant progress in removing VCs from university remuneration committees and in appointing an individual with expertise in remuneration to the committee, both of which will be required by the code. Two institutions told us that the VC will stand down from the committee at the end of this academic year, while every respondent was clear that the VC has never sat on the committee when his or her own pay or personal circumstances are being discussed.

Challenges for compliance

Based on the feedback, there is significant variance around the pay and benefits currently being reported by universities. There is clearly an interest among our respondents in having one clear and common set of metrics to be published against.

Pay ratios will need to be clearer, as will institutions' definitions of senior pay. Universities will also have to think about setting clear terms of reference for their remuneration committees, so that they can get to grips with their expanded role on reviewing and defining senior pay.

Care must also be taken to put the newly-published figures in context. Publication of senior academic pay for the first time is likely to attract attention, particularly where multimillion pound grants are attached to the work that particular academics do. This will have to be contextualised. VC pay may be skewed by the need for UK universities to compete on a global stage for suitable candidates, and with the high salaries offered by privately-funded institutions in the US. Universities will need to think carefully about how to communicate the value that the VC brings to the institution and why a particular salary is justified.

Remuneration committees and governing bodies should begin thinking about this narrative now along with clearer definitions of senior staff, the extent to which VC pay is dependent on performance and how this is measured.

Rob Childe is a higher education employment expert at Pinsent Masons, the law firm behind Out-Law.com.