THE PRICE OF LEADERSHIP: WHAT IS A UNIVERSITY PRINCIPAL WORTH?

Top salaries have been in the news lately. As well as all the kerfuffle about bankers and railway company directors, we’ve also seen evidence of more serious and informed concerns about what we – as a society – pay our ‘top people’. This debate has generated more heat and hyperbole than light and reason. It also carries more than a whiff of hypocrisy, particularly when we start to touch on public sector salaries. At the bottom and middle of most organisations, it seems reasonable to suppose that a skilled and committed workforce, providing good and reliable services, should be paid as well as anyone else who is making a similar contribution. That can probably be agreed by everyone but the most radical anti-State ideologues. But what about those who lead public services?

This issue was recently considered by the Scottish Government’s review of university governance. Chaired by Ferdinand von Prondzynski, principal of Robert Gordon University, the panel made a number of recommendations, some more controversial than others. One of its members made public his disagreement with some key recommendations on including trade union representation in governing bodies, and subjecting the chairs of governing bodies to election. Rather less attention has been paid to its recommendations on the appointment and remuneration of university principals.

Of course, pay and recruitment are closely linked. Salaries are determined, so far as principals are concerned, by each university’s own remunerations committee. While their deliberations are invariably secret, the committee members do take the market into account, and increasingly so as individuals from the world of business have come to dominate governing bodies. I cannot be alone in having heard one committee chair describe the university principal’s salary as ‘peanuts’ compared with the earnings of chief executives in the private sector. And I suspect that many university principals do regard themselves as comparable with top business leaders, not only in the responsibilities they exercise, but even in the way that their university has to behave ever more entrepreneurially.  After all, our expanded higher education system has grown at a much faster rate than the government grant, even before the cuts set in. Someone has to pay the bills, and it is less and less likely to be the funding council.

But universities are still not private companies. The review of university governance took a clear stance on what universities do, and where they sit in the range of large and important institutions. Its report starts by reminding its readers that universities in Scotland are public bodies who carry out a public role. So far as principals are concerned, the report calls for greater transparency and wider participation in appointment and appraisal. It also calls for principals to enjoy pay rises no greater than those awarded for all staff until existing processes have been reviewed, and for remuneration committees to include staff and student members. It also suggested that SFC should ask universities what they make of Will Hutton’s report on fair pay in the public sector. Hutton’s report was commissioned by the Treasury. Like all good reports, his core recommendations were few in number and easily understood. He proposed that top salaries should visibly reflect the principle of fairness, first in visibly being linked to ‘just desert’ (or performance), and second in publishing the ratio between top pay and the average earnings in their organisation.

These changes, modest and achievable though they are, may or may not be implemented. In its initial response to the review, Universities Scotland delicately avoided the question of its own members’ salaries and appointments, and described the Prondzynski report’s many recommendations as ‘complex’ (even if it is, which it isn’t, this tempts me to ponder what a committee of principals ought to be able to handle). Assuming that the Scottish Government will be reluctant to pick a fight with university heads in advance of an independence referendum, I am expecting a deal of sugar and water to be poured on the Prondzynski report in general, and its proposals for top pay in particular.

Even if it were implemented tomorrow, though, I don’t see the report as entering fat cat territory. Nor was this their concern. On the contrary: the panel emphasised that their main concern was over public perceptions of principals’ salaries, which have produced a controversy that ‘has not helped engender trust in governance’. So let’s now take a look at what the principals are paid, and how that compares with others.

My estimates are based on data from sixteen HEIs; three (Glasgow School of Art, Heriot-Watt, the Royal Conservatoire) had not filed their accounts at time of writing, and I have excluded the Open University, as it is a UK-wide provider, although it has a Scottish director.

In the most recent financial year, the average annual salary for a principal in Scotland came to almost £243,000. They ranged between Aberdeen at the top (£335,000) and Edinburgh College of Arts (£144,000) at the bottom. These salaries are nowhere near the top earnings in the private sector, though they would make owner-managers in small firms green with envy. On the other hand, all of the principals of Scottish universities are better paid than the Lord Advocate or Director of the Scotland Office; assuming Heriot-Watt’s principal has not had a drop in salary since 2009-10, then at least sixteen are better paid than the First Minister (or, indeed, David Cameron).

How fast have these salaries been growing? The Prondzynski review notes ‘signs that increases . . . have been modified or halted since the onset of the recession in 2008-9’. This claim is relatively easy to test. Over the four years since 2007-8, principals’ salaries have risen by an average of 11.4%. All sixteen enjoyed an increase, ranging from just over 2% at Dundee and Stirling to almost 31% at Aberdeen. We should, though, remember that a number of experienced principals have retired over this period, and that nothing stopped governing bodies from recruiting a new incumbent, who lacked the experience and track record of their predecessor, at a lower salary.

An average rise of just over 11% is not remarkable in itself. It is well below the level of inflation; and if the rises have certainly not been halted, the rate of increase seems relatively modest. So the scary headline figures about principals’ salary increases are probably based on a small number of rather exceptional cases, such as Aberdeen. Many university staff will point out that their salaries have been frozen for much of this time, but this is not true of all university staff. The number of Scottish academics earning over £100,000 per annum has risen year on year over this period, a feature of our system that I will discuss in a later blog. On the other hand, middle and lower level earnings in universities have stagnated.

What do these figures tell us about the salaries overall? First, they tell us that university principals are very well paid by public sector standards. I find it quite extraordinary that all of Scotland’s top public salaries are held by university principals. Second, principals are unlikely to perform well on one of Hutton’s key tests of fair pay. The average principal’s salary of £242,800 is well over nine times the figure of £26,200 that the Office for National Statistics reports as the median gross annual earnings of full-time employees in the UK. Third, they tell us that different universities, and principals, behave differently when it comes to pay. There is no obvious relationship between salary and such indicators of size and performance as turnover, proportion of income from non-government sources, student numbers, or research rating. And this suggests that some universities and principals will look poor on the Hutton test of ‘just desert’. Finally, some universities and their principals have exercised restraint during the recession but others have not; over this period, the distribution of principals’ salaries has widened significantly.

The most important question, though, is what these figures tell us about the higher education sector. I have nothing but praise for the way that the Prondzynski review panel emphasised the public and democratic roles of universities in modern Scotland. But it is legitimate to ask whether the huge gap between top and bottom in the university pay scales is consistent with that view. Is a growing gap between the ‘chief executive’ and their academic colleagues compatible with a culture of trust, engagement and high morale within the university? Is a growing earnings gap between university principals and Scotland’s employees congruent with high levels of social solidarity and cohesion? Is a growing gap between the salaries of university principals symptomatic of a breakdown in the cohesion and shared purpose of the sector?

If the answers to those questions worry you as they do me, you might wonder what should be done. The answer strikes me as very simple. The Scottish Funding Council should reflect on the Prondzynski panel’s advice, and get on with asking governing bodies what their university has done to implement the Hutton recommendations.

Sources

Report of the Review of Higher Education Governance in Scotland, Scottish Government, 2012

Hutton Review of Fair Pay in the Public Sector: Final report, HM Treasury, 2011

John Field, Higher Education and the Recession, available at http://stir.academia.edu/JohnField/Papers/349811/Higher_education_and_the_recession_the_early_impact_in_Scotland

I have taken all salary figures from the annual financial statements of universities.