Office for Students (OfS) Senior staff remuneration: Analysis of the 2019-20 disclosures Committee of University Chairs (CUC) The Higher Education Senior Staff Remuneration Code

The OfS document analyses how English higher education providers pay their senior staff based on information disclosed in their published financial statements and data within the Annual Financial Return to the OfS, for the financial year 1 August 2019 to 31 July 2020. This is only the second such report as there was no report in 2020 due to the pandemic.

The CUC document is a revised version of its 2018 senior staff remuneration guidance and follows on from an independent review in collaboration with Advance HE published in December 2020. The voluntary Code is set within the context of the overarching HE Code of Governance, based on the values of integrity, sustainability, inclusivity, excellence, innovation, and community.

The OfS paper can be found here.

The CUC paper can be found here.

At-a-glance

• Across all providers, the proportion of staff paid a basic salary of £100,000 or more in 2019-20 was 1.8 per cent (6,038 out of a total of 334,589 full-time staff) compared with 1.7 per cent in 2018-19. Although this is an increase, nearly half of all providers have had a decrease or no change since 2018-19 (OfS, p6)
• The mean paid basic salary for the heads of providers was £219,000 for 2019-20 (£218,000 for 2018-19). The mean total remuneration for the same period was £269,000 (£267,000 for 2018-19) (OfS, p6)
• During 2019-20 total remuneration for the head(s) of provider increased in 93 providers (56 per cent). It decreased in 60 providers (36 per cent) and remained the same in 12 providers (7 per cent). Eleven providers paid their head(s) total remuneration of £400,000 or more in 2019-20 compared with 15 in 2018-19 (16 in 2017- 18 and 14 in 2016-17) (OfS, p9)
• The distribution of data for basic salary and total remuneration pay multiples over the past three years has remained broadly consistent (OfS, p11)
• The OfS concludes that there is “evidence of pay restraint in the sector”; average remuneration for heads has plateaued over the past three years, while distribution of heads basic salary across pay bands and the number of senior staff paid more than £100,000 show little change over this period (OfS, p14)
• On transparency, the regulator said there was evidence that providers were providing an explanation of the governance arrangements in place for making remuneration decisions and giving a transparent justification for their head of provider’s remuneration. It found evidence that providers have had regard to the CUC higher education senior staff remuneration code, “though this is not universal” (OfS, p14) This aligns with the findings of Advance HE’s review which recommended that providers pay particular attention to ensuring transparency was indeed in place.
• The level of remunerations should be fair, appropriate and justifiable, according to the CUC revised code. It should take account of the institutional context, including any consideration of fair pay for all. Remuneration must consider equality, diversity, and inclusion to ensure that there are no biases pertaining to gender or other protected characteristics within the pay structure. Institutions should be clear about what they expect from staff. The process for setting objectives and assessing an individual’s contribution should be robust and consistent (CUC, p3)
• Roles may need to be reviewed in light of changing conditions, sustained performance, experience etc. Non-achievement of an individual’s expected contribution should have consequences. Severance payments must be reasonable and justifiable. There should be a clear and justifiable rationale for the retention of any income generated by an individual from external bodies in a personal capacity (CUC, p3)
• Procedural fairness requires the remuneration process to involve competent people applying a consistent framework with independent decision making using appropriate evidence. Senior post holder remuneration should be determined in the context of an institution’s approach to rewarding all its staff; consideration should be given annually to the rate of increase of the average remuneration of all other staff (CUC, p4)
• No individual can be involved in deciding his or her remuneration. Remuneration Committees must be independent and competent (CUC, p4)
• The process for setting remuneration must be transparent. For senior post holders, there must be an institutional-level justification for remuneration that relates to the competitive environment, the value of the roles and institutional performance. The remuneration of the head of institution (HoI) must be separately justified, published and related to the remuneration of all staff within the organisation (CUC, p4)
• Each institution must publish a readily accessible annual statement, based on an annual report to its governing body. It should contain, among other things, a list of post-holders within its remit; its choice of comparator institutions/organisations; its policy on income derived from external activities; pay multiple of the HoI and the median earnings of the workforce and how that multiple has changed over time and, if it is significantly above average, an explanation of why (CUC, p4)

Implications for Governance

As media coverage in the past and on the latest OfS report demonstrates, vice-chancellor and senior leader pay is a highly sensitive topic. From a governance perspective, it has the potential for unhelpful publicity and therefore represents a reputational risk. Higher than average pay and the details of what is covered in remuneration packages, can lead to comparisons being made with other universities and with the level of pay among staff within an institution, raising questions of fairness. Media scrutiny of VC pay can draw in other elements of university business that are also under intense scrutiny, such as student finance and “value for money” considerations.

The OfS report concludes that there is evidence of pay restraint in the sector, as demonstrated by a “plateauing” of average pay for heads over the past three years and little change in distributions across pay bands and in the number of senior staff paid more than £100,000.

However, attention will inevitably fall on those institutions, listed in the appendices of the report, which have the highest-paid heads and have seen the and biggest percentage changes. Focus will also be given to those with the highest pay multiples ie heads total remuneration compared with the median total staff remuneration.

Governors may wish to note that one of the key questions posed in the OfS report is whether there is transparency about senior staff pay arrangements, whether justification is given by institutions and whether such disclosures have regard to the CUC’s Higher Education Senior Staff Remuneration Code.

It concludes that there are “good levels” of compliance with the staff pay disclosure requirements and evidence that providers have had regard to the CUC higher education senior staff remuneration code, although it points out that “this is not universal”.

This transparency will help providers’ remuneration committees and governing bodies to benchmark more effectively, according to the regulator. It also seems to give the green light to students and others to “push for changes in a provider’s approach to remuneration where they consider it to be out of step with their expectations”.

Helpfully, the OfS outlines some of the justifications that providers have offered about the level of the remuneration package awarded to heads. These include benchmarking remuneration against peer providers; assessment of the head’s performance against personal and organisational performance targets and indicators; self-assessment by the head of their progress against objectives; the need to compete internationally for the recruitment and retention of a head and to recruit a head with the ability to collaborate internationally; the impact of national and international rankings; regard to salary growth across the institution; and input from external advisers and the need to attract and retain the best people.

The need for institutions to provide clear context, explanations and justifications for remuneration decisions is also a key recommendation in the CUC guidance. This underlines the need - as highlighted in Advance HE’s independent review - for remuneration committees to apply a spirit as well as letter test to transparency, which has arguably never been more important, given myriad changes in the higher education landscape since the original Code was published. These changes include the shift in the financial landscape since 2018, with enormous pressure on public finances, the uncertainties of Brexit and the increasing impact of climate change. Challenges related to pensions, wage freezes and protected characteristics pay gaps have highlighted differences between staff and those at the top of institutions – all issues that are under the spotlight in the context of the current pay and pensions dispute with the University and College Union.

Added to this, the student experience of higher education during Covid-19 has heightened the focus on value for money and the fair and efficient use of resources.

Equally, governors will be aware that the imperative to tackle inequality and has never been greater – and has given rise to specific actions in some of the four nations. Equality concerns require close attention to the elimination of biases and exploration of pay gaps. The Code suggests universities might consider not only publishing the pay multiples of the head and the median earnings of the whole workforce, but also the median academic and professional salaries, and how these have changed over time.

The Code reiterates that no individual can be involved in deciding their own remuneration; the head of institution must not be a member of the committee and that the committee must not be chaired by the governing body chair.

Explanatory notes in the document cover useful ground for governors on remuneration committees, such as the elements that may be taken into consideration when deciding the relative value of a post, staff retention and the possible consequences for staff of poor performance. It also provides advice on policies relating to income from external bodies and expenses.

Finally, the CUC document notes the different UK regulatory frameworks of the HE sector mean that governing bodies need to decide how best to use the Remuneration Code. Institutions are bound by the relevant accounts direction issued by their regulator. For example, Welsh institutions have agreed to more extensive senior pay reporting and are working towards developing annual pay policy statements, while in Scotland, institutions will use the Scottish Code of Good Higher Education Governance, which indicates how institutions should meet the key principles of good practice in remuneration.