Global menu

Our global pages

Close

Education e-briefing – CUC publishes the Higher Education Senior Staff Remuneration Code

  • United Kingdom
  • Education

15-06-2018

Institutions will be acutely aware that 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 and more.

At the UUK annual conference on 7 September 2017 Jo Johnson (the then Universities Minister) called on the sector to work though the Committee of University Chairs (CUC) to develop and introduce its own remuneration code.  The CUC issued the draft Code for consultation on 9 January 2018.  Consultation closed on 12 March 2018 and the final version of the Code, together with a number of accompanying documents, has now been published by the CUC.

Whilst the fundamental principles of the Code are similar to the draft, there are a number of changes, including that the document “Guidance on Decisions Taken about Severance Payments in HEIs” refers to the Remuneration Committee making a recommendation to the governing body or “exercising its delegated powers”. This suggests the possibility of a less prescriptive regime than under the HEFCE Guidance. We consider this and other changes from the draft Code below.

In addition to the Code itself, the CUC has published the following documentation:

  • The revised Higher Education Code of Governance;
  • A letter from the CUC Chair;
  • The Context for the Higher Education Senior Staff Remuneration Code;
  • A Possible Outline Structure for a Remuneration Annual Report to the Governing Body;
  • Guidance on Decisions Taken about Severance Payments in HEIs;
  • The Development of the HE Senior Staff Remuneration Code.

The letter from the CUC Chair, Chris Sayers, states that the publication of these documents does not constitute the end of the CUC’s engagement with the issue of VC pay, highlighting that institutions must publish the multiple of the remuneration of the Head of Institution (HoI) and the median earnings of the institution’s whole work force annually, which should be accompanied by sufficient explanation and context to enable useful comparison.  To support these explanations the CUC will publish, on an annual basis, sector level information on VC pay, including the level of the average and the highest quintile multipliers (stated to currently be 6.4 and 8 respectively).  The CUC has also said it will commission an independent review of how the Code has been implemented once the guidance has been in place for a full 12 months.

It is also interesting, from the perspective of examining how the Code has changed from draft to final version, to look at the document setting out the development of the Code.  This states that CUC received 89 responses to the consultation exercise.  As might be expected the vast majority of these (74) were from CUC members or their institutions with the additional responses being two from student unions, five from individuals, three from private firms, one from a trade union, three from representative groups or trade bodies and one from a government body.

The key messages drawn by the CUC from the responses to the consultation is that there was a consensus that the draft Code was too long, but there were mixed views as to whether the CUC should define what constitutes the senior post holder. In addition, Scottish institutions said that whilst they supported the principles of the Code and the need for transparency they would continue to work to the Scottish Code alone.

As a result of this feedback, the CUC’s final version of the Code is now five pages long as opposed to the original seventeen, with some of the other information contained in the draft now being published separately in the supporting documents.  In relation to Scottish institutions, the CUC says that it has left it open to individual institutions to use elements of the Code if they wish.  Finally, as far the issue of senior post holder is concerned, the Office for Students (OfS) intends to define in their accounts direction (yet to be published) what a senior post holder is.

The Higher Education Senior Staff Remuneration Code

There are now three parts to the Code - the introduction, the Code itself (covering two pages) and a page and a half of explanatory notes. 

Introduction

The revised introduction, which is not too dissimilar from the original draft, repeats that the use of Code is voluntary and it is to be followed on an “apply or explain” basis – meaning that institutions should either publically state that they have abided by the minimum requirements of the Code or should provide meaningful explanations for non-compliance and how their alternative arrangements meet its principles. The introduction also points out that the different regulatory frameworks of the HE sector within the UK mean that governing bodies will need to decide how best to use the Remuneration Code, as institutions are bound by the relevant accounts direction issued by their regulator.

The principles contained in the Code are to apply to all remuneration decisions affecting the emoluments of the VC and other senior post holders.  In the original draft of the Code it stated that this would cover the HoI, usually all or some of the members of the senior executive team and possibly other senior staff who report directly to the HoI – it being up to the institution whether to include highly paid academic staff within the senior post holder category.  This has been replaced, however, in the final version by stating that the Code applies to the VC and other senior post holders as prescribed in constitutional documents or by the governing body, as being within the remit of the Remuneration Committee.  As highlighted above it states that, in relation to English providers, the Code will also apply to senior staff as defined in the forthcoming OfS accounts direction.

The Remuneration Code

The Remuneration Code then sets out the same three elements of fair and appropriate remuneration as were contained within the draft, namely that there is:

  • a fair, appropriate and justifiable level of remuneration;
  • procedural fairness; and
  • transparency and accountability.

Each of these three elements are summarised in the same way as under the draft as follows:

  • A fair, appropriate and justifiable level of remuneration - Remuneration starts with a clear understanding of the responsibilities, context and expected contribution of a role and the attributes required to undertake that role effectively. Fair and appropriate remuneration then recognises an individual’s contribution to their institution’s success in that role, and is sufficient to recruit, retain and motivate staff of appropriate calibre in the context of the market for that role, balanced with the need to demonstrate the achievement of value for money in the use of resources.
  • Procedural fairness - Procedural fairness requires remuneration to be set through a process that is based on competent people applying a consistent framework with independent decision making using appropriate evidence and assessing the value of roles, the context and individuals’ performance in them.
  • Transparency and accountability - 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 HoI must be separately justified, published and related to the remuneration of all staff within the organisation.

As before there are a number of principles under each element. 

Those under element one (a fair, appropriate and justifiable level of remuneration) are virtually identical to the draft, including that remuneration should take account of the context in which the institution operates; remuneration can vary according to individual performance; any severance payments must be reasonable and justifiable and here should be a clear and justifiable rationale for the retention of any income generated by an individual from external bodies in a personal capacity. Importantly, one new principle is added, namely that remuneration must consider matters of equality, diversity and inclusion with a view to ensuring that there are no biases pertaining to gender or other protected characteristics within the pay structure.

The principles under element two (procedural fairness) are again fairly similar to those in the draft, although the Code now specifically states that consideration should be given annually to the rate of increase of the average remuneration of other staff when determining senior post-holder pay.  A, probably minor, change in language is that no individual can “be involved” in deciding their own remuneration (rather than previously “have any part” in “deciding” it). Importantly, as before, the Code states that the HoI must not be a member of the Remuneration Committee. The provisions in the draft requiring decisions to be based on robust evidence and that Remuneration Committees must justify their decisions or recommendations to the governing body or other stakeholders have been removed, albeit that the explanatory notes (see below) do say that each year Remuneration Committees must produce an annual remuneration report to the governing body, which needs to provide sufficient assurance that the Remuneration Committee has effectively discharged its responsibilities.

Element three deals with transparency and accountability and the original four principles here have been rewritten to state that each institution must publish a readily accessible annual statement, based on an annual report to its governing body, containing:

  • a list of post-holders within the remit of the Remuneration Committee;
  • its policy on the remuneration for post holders within the remit of the Remuneration Committee;
  • its choice of comparator institution/organisations;
  • its policy on income derived from external activities;
  • the pay multiple of the HoI and the median earnings of the institution’s whole workforce illustrating how that multiple has changed over time and, if it is significantly above average, an explanation of why; and
  • an explanation of any significant changes.

Explanatory notes

There is then a shortened version of the explanatory note which now extend to 12 numbered paragraphs over one and a half pages, rather than the previous 42 paragraphs over six pages.  It is specifically stated that the explanatory notes do not expand the Remuneration Code, but are intended to assist institution’s discussions as to their use of it.

There are several notable additions to the revised explanatory notes.  For example, on severance payments, the explanatory notes set out, as before, that Remuneration Committees should ensure that contracts agreed with senior post holders are fair, reasonable and justifiable and do not expose the institution to significant personal liabilities – in the revised version, however, it is specifically stated that they must be able to explain notice periods of more than six months. 

In relation to institutions publishing the multiple of the remuneration of the HoI and the median earnings of the institution’s whole workforce annually, it now states that this should be accompanied by sufficient explanation and context to enable useful comparison.  It is also stated that to assist with consistency and comparison, the definition of the multiple should be based on the methodology used by UCEA, which is available from its website.  Previously, the draft guidance said that institutions sitting above the multiple of 8.5 would need to justify to stakeholders and the regulator why this is desirable.  This has now been amended to say that institutions who are above the highest quintile (calculated by the CUC as 8) will need to be prepared to provide additional explanations to stakeholders and the regulators as to why this is desirable. 

Amongst other changes are that Remuneration Committees should be able to engage external independent expertise if required (rather than as previously, should co-opt an independent specialist where that expertise is not available from lay members of the governing body); membership of the Remuneration Committee must include the institution’s Chair (as opposed to the draft where it said it may include the Chair); in relation to expenses, Remuneration Committees should receive assurance that the scheme is operating effectively (rather than the wording in the draft which stated that Remuneration Committees should keep an oversight of the aggregate amount claimed).  Also, interestingly, the provision in the draft that senior post holders could be encouraged not to claim for minor items has been removed. 

It is notable that, as in the draft, the explanatory notes state that the HoI may be invited to attend meetings, but must not be present for discussions affecting him or her. Where, however, the Remuneration Committee is responsible for all senior staff pay, including professors, it states that it is “very important” that the HoI is present at meetings to discuss these staff and ensure that the Committee’s decisions are well informed.  In this context, paragraph 3.14 of the CUC Higher Education Code of Governance has been amended (as was proposed by the draft Code) to specifically now state that the Vice-Chancellor or other senior staff may not be members of, but may attend by invitation, Remuneration Committees, but must not be present for discussions that directly affect them (the previous version of the Code of Governance stated that they could be members of and attend the Remuneration Committee but not be present for discussions directly affecting them) and that when considering HoI remuneration, the Remuneration Committee must be chaired by a senior independent governor who is not Chair of the board.

Other documents published by the CUC

A Possible Outline Structure for a Remuneration Annual Report to the Governing Body

This document was originally appendix one of the draft Code, but has now been split out into a separate document, seemingly reflecting feedback that the draft Code was too long.  The contents of this document are virtually identical to appendix one of the draft. However, a new opening paragraph states that whilst the Remuneration Code requires the production of an annual report, this document is a possible approach to reducing the report, rather than being prescriptive, and is not intended to be additional to the Code.  Institutions will need to decide for themselves the format that is most suitable to their circumstances. 

An addition under the heading of “approach to remuneration” is the suggestion that a statement as to the competitive environment and markets that the institution operates within may be useful. There are also a couple of deletions from the previous appendix one, namely the removal of reference to there being a statement to the effect that members of the governing body are unpaid or pad and, (if paid) the basis and extent of their remuneration and how this was decided, as well as reference to research being removed from the non-exhaustive list of the type of factors used to consider reward proposals for senior post holders.

Guidance on Decisions Taken about Severance Payments in HEIs

This document commences by stating that there is significant student and public interest in the remuneration of heads of higher education institutions and in the severance payments and packages received by those vacating such positions.  It also makes the point that for those HEIs that are also charities, the governors must use funds and assets only to further the charitable purpose of their institution. 

Having repeated the three key elements contained within the Code this document then sets out several supporting principles under each of the three headings.  Most of these are in fact taken from appendix 3 of the draft Code but they are now set out under one of the three headings of - a  reasonable appropriate and justifiable amount; procedural fairness and transparency and accountability.  By and large these also repeat the principles set out in the HEFCE guidance on severance pay and the remuneration of senior staff issued on 15 June 2017. 

There is, however, a potentially significant change compared to the wording in the HEFCE Guidance. This relates to the role of Remuneration Committees in relation to severance payments. The updated HEFCE Guidance last June (which was repeated in the draft CUC Code) stated that the Remuneration Committee could only recommend the proposed severance payment – the payment had to be approved by the governing body. This suggested that Remuneration Committees were no longer able to use delegated powers. In contrast, the revised CUC Code refers to the Remuneration Committee either making a recommendation to the governing body or “exercising its delegated powers”. This suggests the possibility of a less prescriptive regime than under the HEFCE Guidance (which applies to English providers), and scope once again for Remuneration Committees to sign off severance payments under delegated powers from the governing body.

We have asked the CUC for the reason for this change and the circumstances in which it envisages delegated powers being used. The CUC have informed us that some institutions responded to the CUC consultation stating that their governing body had explicitly delegated specific decisions (usually within a framework or policy) to the Remuneration Committee – so, for example, there would be a discussion in principle at the governing body to agree a severance package within specified parameters and then delegation to the Remuneration Committee to agree the final details after negotiation. The CUC have informed us that the key is that the delegation to the Remuneration Committee must be explicit, since it is the governing body that retains ultimate authority.

The OfS has not yet made clear its position regarding the use of delegated powers in relation to severance payments, but has said, in response to an enquiry from us, that it will be publishing updated guidance on remuneration in the near future. In the meantime, the CUC Code does appear less prescriptive in this respect than the HEFCE Guidance. Given the scrutiny and controversy around senior staff severance payments in the sector, institutions wishing to use delegated powers will need to consider carefully whether and how to do so.

As the CUC example highlights, one approach would be for the governing body to set negotiating parameters on a case specific basis. Another would be for delegated powers to be exercised within a framework established by a severance payment policy, determined by the governing body, which sets the parameters for delegated decisions by the Remuneration Committee as cases arise. Arrangements outside those parameters would need to be approved by the governing body itself. Indeed, the policy might provide that delegated powers should not be used for any severance involving the head of institution, or in any case involving potential allegations of misconduct against a member of senior staff. In any event, a severance payment policy would need to be carefully developed to give appropriate and explicit parameters for delegated authority which cater appropriately for a range of severance scenarios - a “one size fits all” approach is unlikely to be appropriate or sufficient.

The wording in the Code also differs from the HEFCE Guidance in that the Code refers to the Remuneration Committee reviewing (rather than “proposing”) severance packages, and states that the Committee should take legal advice “if needed” (the HEFCE Guidance requires the Committee to take legal advice).

There are also some additional requirements compared with those in the draft Code, namely that in making severance payments institutions must meet their contractual obligations and be able to explain the reasons for any payments made; that procedural fairness requires severance payments to be set through a process that is based on competent people applying a consistent framework with independent decision making using appropriate evidence; that severance payments must consider matters of equality, diversity and inclusion; that severance payments to senior staff should be disclosed in the annual remuneration report to the governing body and that the Remuneration Committees considering HOI severance, must be chaired by a lay governor who is not a Chair of the board.

The Context for the Higher Education Senior Staff Remuneration Code

This one page document consists of ten paragraphs explaining the major impact HEIs have on the UK economy, the valuable contribution they make to the social and cultural life of their communities, the fact that many HEIs are global business (featuring highly in the QS World University Rankings), that they are large and complex organisations and face constant challenges and increasing competition.  Eight of the ten paragraphs in this document are in fact taken from the preamble of the draft Code. Two new paragraphs have, however, been added – one setting out examples of the demands which a VC can face within a single day, and the other stating that figures provided by UCEA suggest that UK Vice-Chancellor remuneration levels are below those of post-holders in other countries. 

Comment

Since the publication of the draft Code in January 2018, the OfS has published its regulatory framework setting out how it intends to perform its various functions and providing guidance for registered higher education providers in England on the initial and ongoing conditions with which they will need to comply.  Amongst these conditions is an important one relating to senior pay.

Initial and ongoing condition E2 states that a provider must have in place adequate and effective management and governance arrangements to deliver the public interest governance principles that are applicable to it. These principles include that the governing body ensures that there are adequate and effective arrangements in place to provide transparency about value of money for students and taxpayers.

In judging this, OfS may consider the inclusion in the provider’s audited financial statements of information about the pay of senior staff in accordance with the OfS’s accounts direction and whether the governing body has published its written commitment to comply with the Higher Education Remuneration Code published by the CUC, the visibility and strength of that commitment, or any explanation about why it has nor published its written commitment.

The OfS has not yet published any accounts direction so presumably until it does this must mean compliance with the accounts direction issued by HEFCE on 26 July 2017. However, in its response to the consultation exercise on the regulatory framework which took place between 19 October and 22 December, the OfS has flagged up what its first accounts direction will say stating that it will require disclosures that include, but are not limited to:

  • the number of staff with a basic salary of over £100,000 per annum, broken down into pay bands of £5,000
  • full details of the total remuneration package and job titles for each member of staff with a basic salary of over £150,000 per annum, including bonuses, pension contributions and other taxable benefits
  • a justification for the total remuneration package for the head of provider and the provider’s most senior staff
  • the relationship between the head of provider’s remuneration and that of all other employees, expressed as a pay multiple

The OfS has commented on the publication of the CUC Code welcoming it as a “positive step towards greater pay restraint and transparency for university leaders”.  It goes on to state that Vice-Chancellors and the governing bodies of universities need to show “real leadership” on the issue and that, whilst the Code provides useful guidance, tough questions still need to be asked about high pay in the sector.  Finally, the OfS says that it will publish its accounts direction later this month which will set out increased expectations around transparency for senior pay and that where institutions breach the OfS regulatory conditions “we will not hesitate to intervene”.

It is therefore important to bear in mind that the CUC Remuneration Code is just one piece in the jigsaw of VC and senior staff pay and the exact details of the OfS accounts direction, together with what steps the OfS will take where it believes senior pay is too high, remain to be seen.

UCEA has commented on the publication of the Code stating that senior management, as defined within it, comprises around 0.2% of all university staff and that the overall pay ratio at sector level in 2016 to 2017 was a multiple of 6.8 as compared with 11 in the Civil Service and 52 as an average of the FTSE 350. 

A less positive response to the Code has been given from UCU who have described it as “woefully inadequate” saying that it is particularly disappointed that the Code does not ban Vice-Chancellors from attending Remuneration Committee (describing the arrangement that means they must leave the meeting when their pay is discussed as a “bizarre gentleman’s agreement”).  UCU have also said that staff and students should have a place on Remuneration Committees “to ensure that leaders can be held properly accountable”.

For more information contact

< Go back

Print Friendly and PDF
Subscribe to e-briefings