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Vice-chancellor pay, what's the story?

By Jenny Brown, Chief Not for Profit Operating Officer, Grant Thornton UK LLP

Posted by Rebecca Paddick | July 14, 2017 | Finance, legal, HR

Senior executive pay continues to be heavily scrutinised by the media, regulators and government. Recently, the higher education sector has been the focus of particular attention with Jo Johnson, the Universities Minister, stating that he believes “vice-chancellors are paid too much” and repeating his call for the sector leadership to show ‘pay restraint’. 

Many of the leading UK universities are complex global institutions comparable with large corporates, however as questions regarding the value for money offered by universities continue, the sector is aware that news of increases in vice chancellors’ pay could have damaging consequences.

Grant Thornton’s survey of 156 higher education institutions found that the average vice chancellor (VC) salary for FY 2015/16 was £246,000. When you combine this with pension contributions, benefits in kind and bonuses, total average remuneration for a VC is brought to £281,000.

From the start of our research in 2009/10, average VC remuneration has increased by 13%[1]. During this period sector income has also increased by 29%, expenditure by 25% and the number of staff for which VCs are responsible has increased by 12%[2]. Interestingly, before inflation, the average UK weekly wage also increased by 13.3% during this period[3].

There is an argument that the role of the VC has become more demanding over time as the sector becomes increasingly more competitive and complex. However, with most employees having to settle for low digit wage increases, the higher education sector is not alone in finding itself under increased scrutiny regarding senior executive pay. 

There is a continued focus on FTSE 350 companies to connect remuneration with strategy and results and an increasing responsibility for remuneration committees to be more transparent and accountable. However remuneration committees in the higher education sector are independent and report only to their university’s governing body.

Whilst VCs regularly have to deal with complex issues similar to those of a large corporate CEO, our research found that few university VCs are on the same salary scale as their UK corporate counterparts

Whilst VCs regularly have to deal with complex issues similar to those of a large corporate CEO, our research found that few university VCs are on the same salary scale as their UK corporate counterparts.

The CEO of a FTSE 350 company, with total income on par with a large Russell Group institution, would expect to receive a salary in excess of £500,000. Whilst there is considerable variation at institutional levels across all sectors we have found that, on average, VC’s in the higher education sector receive 50% less salary than their FTSE 350 counterparts.

An average FTSE 350 CEO received a salary of £478,000 in 2015/16[4], a 3% increase on the prior year (2014/15: £466,000) and not dissimilar to the increase seen in VC’s salaries over the same period (2.2%).

However, when comparing to the FTSE 350, it is important to highlight that salary accounts for less than a quarter of a CEO's remuneration package[5]. In the higher education sector, even with the introduction of performance related pay, the average salary for a VC represents 87% of their total remuneration. Therefore in terms of a total remuneration package, the average FTSE 350 CEO receives approximately eight times more than the average VC.

To effectively start challenging the current level of senior executive pay, a common measure first needs to be established. Whilst not perfect, one approach increasingly used by large corporates is to benchmark CEO pay against the organisation’s average employee salary.

This approach has obvious advantages and disadvantages as the resulting figure would vary greatly depending on the size, employee make-up and location of the organisation but it does provide a clear commonality.

Size, location and performance of an institution

Currently, there appears to be a relatively strong correlation between the total cost of a VC’s office and an institution’s size in the higher education sector.

Those in the Russell Group that generate more than 20% of their income through public and private sector research are found to remunerate their VC more generously. There are many reasons why this could be - the relative size and complexity of the institution, recognition of the VC’s vision and ambition for the institution or because they believe that a higher salary better reflects the status of the institution and is therefore more likely to attract and retain the most appropriate candidates.

Surprisingly the average VC salary in London is only 0.3% higher than the average for the rest of the UK, £247,000 compared to £246,000, and total remuneration for a VC in London is just 4% higher than in the rest of the UK (£284,000 compared to £279,000). There are a relatively large number of small and specialist institutions in the capital which may account for the average pay of London VCs being in line with the sector average.

Of the 156 VCs surveyed, 37 had been in place since 2009 and had seen a remuneration increase of 21% over this period, compared to 14% for the sector in general. Reward for demonstrable achievements in the sector still tends to be in the form of a salary uplift or pensions benefits.

There is also a very strong positive correlation between university league table rankings and VC pay. As the universities towards the top of the league tables tend to be larger institutions, justifying a higher than average salary is likely to be easier when VC’s can point to their league table position.

Further transparency on the horizon: gender pay gap reporting

In 2009/2010, when we first undertook this research, 11% of VCs in post were women and earned an average salary of £191,000. This created an average gender pay disparity of 6% when compared with their male counterparts (£204,000).

Since then the sector has seen a continued increase in the number of women VCs and this year, out of the 156 institutions surveyed, 18% of VCs in post at the end of FY 2015/16 were female.

An increase in salary was also recorded, with the average female VC salary up to £240,000. This compares with the average salary recorded for male VCs which came to £242,000 for FY 2015/16[6]. The highest remunerated VC for 2015/16 was female although, overall, only two female VCs were in the top ten highest remunerated VCs for the year.

Although there remains a significant gender pay gap in the UK, the higher education sector seems to be taking steps to ensure talent at VC level is rewarded regardless of gender. There are inevitable outliers though and focus will undoubtedly start to turn to those institutions with the largest gender pay gaps as this information is now required to be reported publicly.  

W: www.grantthornton.co.uk


[1] Average salary per institution is not weighted for changes in Vice Chancellor

[2] Based on source data for Grant Thornton’s report, Adapting to change, the financial health of the higher education sector in the UK 2016 and the survey of Vice Chancellor’s pay 2017

[3] Office for National Statistics Average Weekly Earnings Total Pay Index (Whole Economy)

[4] Grant Thornton Corporate Governance Review 2016 – The future of governance: one small step …

[5] Grant Thornton Corporate Governance Review 2016 – The future of governance: one small step …

[6] Based on VCs in post for a twelve month period during the period under review.

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