Posted by Deborah Rees-Frost on 03 April 2018
Universally challenged: Lessons on exec pay from university RemCom
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The universities sector now faces the same public scrutiny as any FTSE counterpart - owing to recent media coverage of large pay packets for Vice-Chancellors, juxtaposed with lecturer protests over the reduction of their pensions, and the resulting strikes affecting student contact time. And if our uptick in requests for university RemCom support is anything to go by, Chairs of Remuneration Committees and HRDs are beginning to feel the heat.
It seems that universities can learn a lot from the private sector in terms of transparency, independence in setting pay, and a clear Governance process to follow. But at the same time, the new draft Remuneration Code published by the Council for University Chairs talks to a wider agenda – one perhaps all Remuneration Committees could consider.
Their governance code (here) focuses heavily on the impact of universities in both local and global communities. Universities are encouraged to recognise that public money is involved, and consider their reputation, transparency, and the variety of stakeholders who have a legitimate interest. These are core values which should inform every conversation around executive pay.
It’s true that universities receive a great deal of public funding and so should have obligations when it comes to sharing details of executive pay. But I’d argue that borrowing ideas from other sectors allows private sector companies to make useful points of comparisons with a wider group of senior roles – and ultimately strengthen their existing RemCom structure. In addition, the work completed by Will Hutton and Claire Chapman on The Purposeful Company (here) echoes the idea that remuneration should consider a wider world than simply the relevant benchmark, and takes a longer term view of executive pay and its impact.
Value for money
The universities’ code is clear about responsibility to the people paying their wages. Any student who has handed over around £30,000 for their degree is just as heavily invested as a shareholder in a private company, perhaps more so. This income – and funds from the public purse – must be carefully distributed to demonstrate value for money.
Private companies should also bear this responsibility in mind. The money in their pay packet directly results from contributions from other employees, as well as customers and investors. Securing the future of the company is in everyone’s best interest, but be careful not to alienate ‘rank and file’ employees who form the core of your business.
Transparency
‘Greater transparency, disclosure and explanation will allow a more rational and informed debate on remuneration, and enable stakeholders to hold institutions to account.’
The above is taken directly from the universities’ code, but it should apply to any RemCom. It’s important to consider the groups and individuals who legitimately make up the stakeholder group, beyond the interest of the executives and shareholders. Addressing explanations of executive pay, pay for performance and context to employees, customers and suppliers all helps to avoid the debacle of Persimmon, Carillion and BHS.
Fairness
All committees tasked with deciding on executive pay have to find a tricky balance between competing demands. This may include role requirements; performance; pay relativity to the rest of the organisation; as well as attracting, retaining and motivating the right talent in a competitive market. Taken together, these requirements must produce an outcome which feels ‘fair’ to a diverse group of stakeholders.
Nobody said it was easy. Universities in particular have a long way to go in assuring their stakeholder groups, students, employees and the wider public that their Remuneration Committees take their role responsibly, and are reliable stewards of the organisation’s reputation and governance around pay. But take heart from a key principle of the universities’ code: that extraordinary remuneration requires extraordinary achievement. You can pay your top people whatever you like, but make sure you know what you’re getting in return.
For advice on RemCom matters, you can contact Innecto on 020 3457 0894 or email enquiries@innecto.com
We are producing a report into the ‘Funnel of Fairness’ for university Vice-Chancellors’ pay. If you would like to see where your university Vice-Chancellor stands, and receive a free copy of the report when it is published, or to discuss any other matter of university remuneration, please contact deborah.rees-frost@innecto.com.
