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Education E-briefing – Draft Higher Education Remuneration Code Issued by Committee of University Chairs

  • United Kingdom
  • Education - Briefings

16-01-2018

Background

The issue of Vice-Chancellor and senior staff pay has been one of the most topical matters in higher education for most of the last 12 months. During this period of time the issue has regularly been in the national press, with contributions to the debate from various individuals and bodies such as Jo Johnson (in his then role as Universities Minister), Lord Adonis, Sir Michael Barber (as Chair of the Office For Students – “OfS”), HEFCE, UCU and Universities UK (“UUK”).

In his speech at the UUK annual conference on 7 September 2017 Jo Johnson announced that he was going to ask the OfS to introduce an ongoing condition of registration that would require higher education providers to publish the number of staff paid more than £100,000 a year and provide a clear justification of the salaries of those paid more than £150,000 a year and that he would ask to OfS to use its powers to take action if providers fail to meet these requirements.

In response, on 19 October 2017 the Department for Education published a number of consultation documents on proposed changes to the regulatory framework for English higher education. This included consultation on the initial and ongoing conditions of registration with the OfS, with one of the proposed ongoing conditions being that institutions must provide to the OfS, and publish in their annual financial statements, information on the number of staff members earning a basic salary of over £100,000 per annum and, for those staff earning a basic salary over £150,000 per annum, details of their total remuneration - and an explanation of how the remuneration packages were decided and justified.

Also in his speech of 7 September 2017 Mr Johnson called on the sector to work through the Committee of University Chairs (“CUC”) to develop and introduce their own remuneration code. It is this draft code that has now been published by the CUC.

The Draft Higher Education Remuneration Code

Introduction

The draft code has been published by the CUC for consultation, with the consultation period ending on 12 March 2018. Contributions are welcome from anyone with an interest in the reputation of the UK higher education sector.

In the introduction to the code, the CUC states that fair and appropriate remuneration is key to the success and development of the UK’s HE sector, as well as to its continued public support. It states that the code has been developed after wide consultation with CUC members and HE stakeholders. The intention is that the code will be reviewed regularly to ensure it remains fit for purpose. The introduction suggests that this will normally take place every four years and will be in consultation with the sector. It also points out that Scottish institutions are bound by the Scottish Funding Council’s accounts direction and will need to look first to the Scottish Code of Good Higher Education Governance.

Whilst adherence to the code is voluntary, the guidance states that institutions should either publicly state they have abided by the minimum requirements of the code or provide meaningful explanations for non-compliance and, in such cases, explain how their alternative arrangements meet the principles of the code. The guidance says that these statements should be included in an institution’s annual accounts, remuneration reports and/or similar public reports, being available on their website and to the public on demand.

The guidance also states that the principles of fair remuneration set out in the code apply to all remuneration decisions affecting the group of staff which an institution defines as “senior post holders”. This will always include the Head of the Institution, as well as usually all or some of the members of the senior executive team and possibly other senior staff who report directly to the Head of the Institution. It is up to the institution whether to include highly paid academic staff within the senior post holder category.

The draft code sets out three elements of fair and appropriate remuneration which are underpinned by a number of supporting principles. These principles are then fleshed out in several pages of explanatory notes.

The key elements

According to the code, fair and appropriate remuneration requires three key elements:

• a fair, appropriate and justifiable level of remuneration;

• procedural fairness; and

• transparency and accountability.

The principles

There code then sets out ten principles in relation to the first element, seven principles for the second and four principles for the third. These principles include:

• Remuneration must take account of the context in which the institution operates.

• Remuneration must be linked to the value delivered by the individual acting within a role.

• The range of the values of a role needs to be based on a number of components.

The explanatory notes suggest that criteria for assessing the value of roles could include complexity (such as scale and range of decision making); impact (on for example students, research, finances, employees etc); discretion (such as level of accountability and degree of autonomy); knowledge and skills required; reputation and academic/professional credibility needed for the role; the ability to recruit and retain key staff; and external comparisons.

• Remuneration can vary according to individual performance.

It is stated that the decision whether to apply performance related pay is for individual HEI’s to make and that nothing in the code should be taken to imply performance related pay is a requirement for fair and appropriate remuneration. However, the explanatory notes state that where an institution uses metric-driven performance assessments, a balance should be achieved between the institution’s long and short term objectives.

 • Any severance payments must be reasonable and justifiable.

The draft code says that, in making severance payments, institutions must meet their contractual obligations and be able to justify any payments made and that HEIs will need to carefully consider any advice that is available from regulators, together with the detailed CUC advice at appendix 3 of the draft code. This appendix repeats the principles set out in the revised HEFCE guidance on severance pay and the remuneration of senior staff published on 15 June 2017 and includes the requirement that it is role of the Remuneration Committee to propose any severance packages for senior post holders and seek legal advice before making its recommendation to the governing body. The draft CUC code also comments that Remuneration Committees have specific responsibilities in this area – in particular, ensuring that contracts agreed with senior post holders are fair, reasonable and justifiable and do not expose the institution to significant potential liabilities, for example by having excessive notice periods.

• Remuneration Committees should be as independent and expert as possible.

There is some quite detailed commentary on this in the explanatory notes including that Remuneration Committees should be subject to external verification of their effectiveness, expertise and independence at least every four years; members may be ex-officio but otherwise should be appointed for a fixed term of usually three or four years with a possible reappointment for one further three or four year term; and at least one member of each Remuneration Committee needs to have expertise in the field of remuneration.

• The Head of the Institution must not be a member of the Remuneration Committee and when considering the Head of the Institution’s remuneration, the Committee must be chaired by a senior independent governor who is not Chair of the Board.

In relation to these points the CUC intends to update paragraph 3.14 of the Higher Education Code of Governance by adding a requirement that Remuneration Committees are chaired by a senior independent governor when considering the Head of the Institution’s remuneration. It will also amend the current provision in paragraph 3.14 which says that the Vice-Chancellor or other senior staff may be members of, or attend, the Remuneration Committee but must not be present for any discussions that directly affect them. The new provision will say that they may not be members of the Committee but may attend by invitation. The explanatory notes to the draft code state that where the Remuneration Committee is responsible for all senior staff pay, including professors, it is very important that the Head of the Institution is present at meetings to discuss these staff and ensure that the Committee’s decisions are well informed.

• Institutions must publish a pay multiple and illustrate how that multiple has changed over time.

The explanatory notes clarify that this means the institution must annually publish, as a multiple, the ratio of the remuneration of the Head of the Institution to the median earnings of the institution’s whole workforce, although the institution may also wish to publish other multiples, such as the ratio of the Head of the Institution to the median academic salary, the median professorial salary and the median professional staff salary. It says that institutions should set themselves a range of pay multiple that is acceptable. It is noted that over 80% of institutions currently sit within a range of multiples from 4.5 to 8.5 (the Head of the Institution’s pay compared with median earnings of the whole workforce). Institutions wishing to position themselves outside of this range will need to be prepared to justify to stakeholders and the regulator why this is desirable. The code also states that the aggregate senior post holder remuneration would normally be expected to increase no faster than the average of all HEI staff.

• Evidence that affects senior post holder remuneration should be published.

The explanatory notes state that institutions should publish any key performance indicators that influence remuneration decisions and that institutions who provide performance pay should outline their policy on performance pay and disclose those objectives and any metrics for the previous year that affected the remuneration of the Head of the Institution, along with an explanation of how their performance was judged against them.

• Remuneration Committees must justify their decisions or recommendations to the governing body and other stakeholders.

An example of a possible framework for a remuneration annual report is set out at appendix 1 of the draft code.

For more information on the draft CUC code, the topic of VC and senior pay and severance arrangements, or to discuss how we can help institutions or remuneration committees in dealing with these sensitive issue please contact: