23 SES 09 C, Higher Education
There is a long running public and political debate in the UK and Australia about the level of vice chancellors’ remuneration in publicly funded universities. These debates tend towards the ritualistic, with public condemnation of perceived excessive levels of remuneration countered with mantras of universities being large and complex businesses, with pay objectively and independently set. The furore tends to die down periodically, only to be re-ignited when the next slew of university financial reports is published. Whilst governments at times express significant displeasure, threatening greater oversight or regulation, little actually seems to change year-on-year. Similar trends are emerging in other European countries, such as Denmark (Boden and Wright 2010). This presentation gives critical consideration to the determination of vice chancellors’ remuneration with a view to framing this debate conceptually as a governance issue, with broader implications, to aid more nuanced understanding. In the context of recurrent policy and political debates about the impact of marketisation and corporatisation of public universities, the presentation responds to the research question: what role have shifts in university governance played in contributing to the shifting nature and extent of vice-chancellors’ remuneration in Australia and the UK?
We define remuneration as the money and non-monetary perquisites that an individual receives as a consequence of their relationship to an organisation. This may take four forms. Profit is a return on capital invested – a reward for risk-taking. Salaries or wages are the product of a contract for employment. Stipends are non-contractual payments that facilitate someone’s attachment to an organisation (Cong, Wang & Evans 2012). Finally, economic rent is the extraction of value from an organisation in excess of the economic value of any work contributed or capital invested. Rent-seeking behaviour is where people attempt to make personal gains solely through the exercise of power in relation to the organisation (Krueger 1974). Remuneration is therefore determined by and reflects the social, economic, legal and structural dynamics of organisations. These dynamics are formalised in governance regimes: governance determines who gets remunerated, in what form and at what level (Cong, Wang & Evans 2012).
The presentation explicates the difference between governance through stewardship (Davis, Schoorman and Donaldson 1997) and principal-agent forms (Jensen and Meckling 1974) in the context of remuneration. In stewardship forms, senior staff are motivated by a commitment to and alignment with the organisation that overrides personal financial interests – people are not primarily motivated by money (Tricker 2009). More contemporary agency approaches in commercial firms, in contrast, reduce personal utility for the senior manager to a matter of financial reward (Keasey, Thompson & Wright 1997). Motivation becomes a question of determining how much managers (the agents) need to be paid to keep them aligned to the shareholders’ (the principals) interests rather than pursuing their own interests at the shareholders’ expense (Jensen and Meckling 1974).
Collegial university governance is of a stewardship nature (Duderstadt 2004). However, we posit that principal-agent approaches have been increasingly adopted in relation to vice chancellors’ remuneration in corporatised universities. As with firms (see Berle and Means 1968), this shift has been made possible by the emergence of a powerful managerial class (in the case of universities, through policy-led reform). Unlike for-profit firms, not-for-profit universities lack any economic principals akin to shareholders to exercise control over their agents (Shattock 2006). These powerful new managerial elites disrupt the existing collegial-based social relationships and obligations on which stewardship/collegial governance rested, supplanting them with financialised notions of the university (Boden, Ciancanelli & Wright 2012).
 By vice chancellor we mean the chief executive officer of universities. These posts are sometimes named as ’president’, ’principal’ or ’rector’.
Following our conceptual sections, we present critical narratives of the governance changes in the setting of vice chancellors’ remuneration in Australia and the UK, drawing on university and higher education policy documents, and relevant literature. We also present and analyse statistical data, collated from publicly available sources, on changes in vice chancellors’ remuneration levels over time in comparison with changes in salary rates for level 1 (base level) lecturers. Data are drawn from current and historical records of university financial statements; historical records of the findings of Australian government reviews of academic work and of Australian Academic Salaries Tribunal reports; university archives pertaining to academic salary rates; current academic salary rates drawn from university websites and published enterprise agreements (or equivalent); and archived academic salary records held by UK and Australian academic staff unions or equivalent.
These data show that, as Australian and UK universities have become corporatised and marketised, so has the role and nature of vice chancellors’ remuneration become altered. As a result, the ratio between vice-chancellors’ remuneration and the pay of grass roots academics has increased dramatically. This presentation does three things. First, we conceptualise remuneration and explicate its relationship to governance forms. This is innovative in higher education studies and provides a more nuanced basis for analysis. Second, we chart qualitatively changes in university governance for setting vice chancellors’ remuneration and relate this to quantitative changes in remuneration levels, comparing them with those for academics across time. This demonstrates a correlation between governance changes and relative remuneration levels. Our early observation is that vice-chancellors’ remuneration has increased most rapidly relative to the remuneration for other academic staff where university systems have been subject to commercialisation and marketization reform that impacts governance arrangements (Rowlands 2017). Third, we argue that these governance changes led directly to changes in relative remuneration levels. In particular, we argue that a financialised business rhetoric in higher education, combined with a lack of effective control over powerful managerial elites, has facilitated a transformation of the nature of vice chancellors’ remuneration. We further argue that, increasingly, such remuneration is shifting from being salary, in the sense of the quid pro quo of an employment contract and reward for work undertaken, towards being economic rent. This is on the basis that governance control over vice chancellors’ pay is now so weak in Australia and the UK that vice chancellors are increasingly able to extract remuneration not in proportion to their contribution. We explain how the rhetoric of ‘business’ is used to justify such actions. We conclude by asserting that his represents a fundamental failure of university governance.
Berle AA and Means GC, (1968) The Modern Corporation and Private Property. New York: Harcourt, Brace & World. Boden R, Ciancanelli P and Wright S (2012) Trust universities? Governance for post-capitalist futures, Journal of Co-operative Studies, 45, 2, 16-24. Boden R and Wright S (2010) Follow the money: An interim report on Danish University funding, EPOKE, Aarhus University. Accessed at http://arts8.auinstallation29.cs.au.dk/fileadmin/www.dpu.dk/forskning/forskningsprogrammer/epoke/workingpapers/WP_16.pdf on 22 January 2018. Cong, LM, Wang, Q & Evans J (2012) Determinants of excessive executive compensation, Corporate Board: Role, Duties and Compensation, 8, 1, 32-47. Davis JH, Schoorman FD and Donaldson L (1997) Towards a stewardship theory of management, Academy of Management Review, 22,1 20-47. Duderstadt, JJ (2004). Governing the twenty-first century university: a view from the bridge'. In WG Tierney (ed.), Competing Conceptions of Academic Governance: Negotiating the perfect storm, 137-57. Baltimore: The Johns Hopkins University Press. Jensen MC and Meckling WH (1976) Theory of the firm: Managerial behavior, agency costs and ownership structure, Journal of Financial Economics, 3,303-360. Keasey, K, Thompson, S & Wright, M (1997). Introduction: the corporate governance problem: competing diagnoses and solutions. In K Keasey, S Thompson & M Wright (eds). Corporate Governance: Economic, management and financial issues, 1-17. Oxford: Oxford University Press. Krueger A (1974) The political economy of the rent-seeking society, American Economic Review, 64,3,291-303 Rowlands, J 2017, Academic Governance within Contemporary Universities: Perspectives from Anglophone nations, Springer Nature, Singapore. Tricker, B (2009). Corporate Governance Principles, Policies and Practices. Oxford: Oxford University Press.
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