How Much are the Leaders of our Universities Worth?

Egan Associates Principal John Egan was recently quoted by a number of media publications on the topic of University Vice Chancellor remuneration. University of Sydney

The Australian asked whether it was reasonable that Vice Chancellors from top universities were earning salaries over $1 million, and the average salary across Australian Vice Chancellors was almost $900,000.

In Egan Associates’ view, there are a number of elements that need to be taken into account when determining the answer to this question. John Egan’s thoughts on the matter are below.

  1. External Relativities

In the private sector the structure of executive pay will often consist of fixed remuneration and incentives. The latter are not universally available in Universities or are not of substantial scale. This observation would appear to indicate a need for competitive fixed remuneration to ensure overall remuneration for Vice Chancellors remains aligned to the market.

However, universities are not truly equivalent to the private sector. A university’s governance environment often comprises of the alumni, the student population, the academic community and Government nominees. Universities, along with other Government supported organisations, need to have governance structures which avoid traditional impediments to excelling at an intellectual and management level yet also enable them to efficiently remove individuals who are not applying their intellect and their energy optimally for the benefit of the academic and student community. This is a very different governance model from that which applies in business.

There is also not the same level of competition between universities within the nation as there exists between rival commercial entities. Regulation of fee levels removes the urgency for efficiency and also the impetus to create differences in courses that would help a university stand out from the rest.

As recently noted by Richard Dawkins, the architect of the HECs reforms in 1987, “Since 2009, with the demand-driven system, taxpayer funding for Commonwealth-supported places in higher education has increased by 69 per cent compared to 29 per cent growth in nominal GDP over the same period. Funding of university students has grown at twice the rate of the economy.” This increase primarily stems from a change in government policy.

If Federal Education Minister Simon Birmingham’s proposal to allow universities to charge different amounts of fees for “flagship courses” is implemented, followed by further deregulation down the track, the ability of universities to innovate and compete both amongst each other and with international peers will intensify. This would increase the difficulty of the role of a Vice Chancellor, bringing it more in line with the private sector. Until then, however, universities have more in common with government organisations.

Comparing the accountabilities and scope of a Vice Chancellor position to that of Heads of Premier and Cabinet or positions at a Commonwealth level with oversight of billions in expenditure, the role of a University Vice Chancellor would often not have the same complexity or reach.

In my judgement, having a University Vice Chancellor paid more than the Head of the major budget areas in State Government or more than the Principal Adviser to a Premier or a major Commonwealth Department, including the Head of Prime Minister & Cabinet, appears problematic.

I would have thought the differential should favour the Head of Prime Minister and Cabinet, just as it should favour an individual in a similar position in a State who is managing transport, education and health where expenditures run into the billions or tens of billions.

  1. Accountabilities

The Vice Chancellor may be a distinguished academic with an international reputation who provides academic leadership while being supported by a Provost who would oversee the day-to-day operations of the University, or these roles may be reversed. Some Vice Chancellors may fulfil both roles, particularly in the smaller/regional Universities.

Where a University is substantial in scale (having for example revenues substantially above $1 billion, a student population of 50,000 or more, an academic staff of several thousand, a number of campuses and assets worth billions of dollars), the Vice Chancellor’s focus is likely to be more that of a Chief Executive. A Provost, should one exist, would have stewardship of the academic community, which would be managed through a number of Deans across allocated disciplines.

One of the challenges of a modern university is that it’s often based over multiple sites or multiple campuses. In terms of the main campus, in many respects the Vice Chancellor has control of a small city with 50,000 plus movements of residents and occupants in and out every day. There is substantial infrastructure that will have to be managed. The Vice Chancellor would have oversight of facilities capable of potentially accommodating several thousand students, feeding more than 50,000 individuals for one or two meals per day and with 10,000 or more daily vehicle movements within its precinct.  These are major tasks.

Some Vice Chancellors would have oversight of complex research projects which involve the acquisition and management of tens of millions of dollars’ in research funds. This oversight may cover annual applications for grant funding. It may also entail managing participation in linked research or relationships with global research teams, particularly in medical, science, information technology and related fields.

There would also be a parallel focus on the commercialisation of University sponsored intellectual property.

  1. Scale of the University

There is a difference between a university the size of Sydney or Melbourne University –  with a billion dollars plus in revenue – and a university that manages a couple of hundred million dollars in revenue. It would not be appropriate to pay the same amount of money to a Vice Chancellor serving in all universities.

  1. The experience/background of the candidate

If Australian universities have aspirations to rival international universities and a desire to attract top university executives from leading institutions around the globe to their leadership team, they will have to pay a premium.

Such executives will ensure the university retains or improves its prestigious position within global rankings. They would have significant reputation, networks to support research and will be comfortable conducting fundraising and networking within the business community.

To pay modestly and fail would not be my view of an appropriate way of managing or determining a Vice Chancellor’s level of reward.  If Australia is to be part of the world’s innovative and intellectual class across all relevant disciplines where we have the potential for economic advantage, then leaders of Universities should be well paid.

  1. Internal Relativities

A critical task for the governing body of a university is establishing pay relativities throughout reporting levels.  Such relativities need to recognise academics with international reputation that can attract substantial funds for research and development as well as key non-academic functions which are vital to a university’s sustainability.

The pay relativity between the leadership team and the Vice Chancellor would be influenced by the scale and the breadth of functions reporting to the Vice Chancellor, the size of the student population (including international students), the complexity of the academic environment and the reward level paid to key administrative staff either under a Deputy Vice Chancellor or other corporate administrative leader.

Larger Universities are likely to have a Head of Human Resources, Head of Strategy, Head of Property & Development, Chief Financial Officer and a principal Legal Counsel. The complexity and the depth of those functions is influenced by scale, though reward would indicatively be between $300,000 and $500,000.

A large University would also have a number of Deputy Vice Chancellors, who might undertake different oversight roles, for example of the student population, international engagement, research and development, administrative functions, or property and infrastructure activities including campus accommodation.

Reporting to a level below the Deputy Vice Chancellor there may be Pro Vice Chancellors and/or Deans, with their direct reports being Professors with oversight of a School or Division. Below that fall academic staff and faculty or school support staff.

One would anticipate that senior professorial staff would be in receipt of fixed remuneration up to $250,000, Deans or Heads of School indicatively from $250,000 to $350,000, Deputy Vice Chancellors from $350,000 to $500,000, with Vice Chancellors being paid above $700,000.

Remuneration above $700,000 will be reflective of the university’s pay structure, the independence of the University Council in determining remuneration and the challenge in attracting a distinguished individual with significant reputation, skills and prior experience in managing an enterprise of significant scale.

It will be up to the Senate or governing body of the University to assess whether they are getting value for money at $1 million plus, whether the pay relativity between the Deputy Vice Chancellor and other significant members of the University leadership team is appropriate.

There is merit in paying competitive remuneration for a leader with a global reputation who brings significant expertise and leadership, will lead the university efficiently, attract the best academics, and obtain significant research grants. Such actions will contribute to retaining a leadership position in global rankings, which in turn will attract full-fee paying international students.

In my view a university has much more dependence upon the quality of the teaching staff, the professoriate and the research staff than central administration.  Yet if central administration provides the leadership and has the ability to garner the resources to make the student and research experience second to none, they are invaluable – in such cases an extra half a million for a top leader will be nothing for a university with expenditure and assets running into billions of dollars.

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