UK universities will be expected to publicly justify high pay ratios under new Code

The draft (17-page / 240KB PDF) has been developed by the Committee of University Chairs (CUC), which is seeking views on its proposals until 12 March. Compliance with the code would be voluntary, but institutions that choose to adopt it would be expected to explain their reasons for any non-compliance.

Over 80% of UK universities pay their vice-chancellor between 4.5 and 8.5 times average salary, according to the CUC. Pay outside of this range must be justified to "stakeholders and [the university] regulator", according to the draft code.

Vice chancellors of the 24 large, research-orientated UK universities that make up the Russell Group were paid an average of nearly £332,000 over the last academic year, which increased to over £355,000 when pension contributions were included, according to research by Times Higher Education (registration required).

The draft code has been designed to ensure that senior staff at UK universities receive "a fair, appropriate and justifiable level of remuneration", awarded in a way that is transparent, accountable and procedurally fair. It is intended to apply to senior post holders at all UK higher education institutions, according to the CUC.

At a minimum, universities that adopt the code will be required to publish on an annual basis the ratio of vice chancellor pay to median earnings, expressed as a multiple. They may also publish other pay multiples if they choose to do so, such as the ratio of vice chancellor pay to median academic salary, median professorial salary or median professional staff salary, according to the code.

Pay awards should take into account "the context in which the institution operates" and the value that that individual brings to the institution, according to the code. Pay may vary according to individual performance, and there should be "consequences" in the form of performance management, no participation in bonus payments or no basic pay uplift if individuals do not perform adequately. Severance pay must also be "reasonable and justifiable", according to the draft code.

Vice-chancellors would be prevented from sitting on university remuneration committees, although they could be invited to attend any meetings where their own remuneration was not being discussed, according to the draft code. The code also states that "at least one" member of the remuneration committee should have expertise in remuneration, which may require the appointment of an independent specialist.

The code calls on universities to publish their definition of the term "senior post holder", and to provide a "clear, meaningful explanation" of their approach to these individuals' pay in a place that is "readily accessible". They will also have to continue to disclose the pay of their higher-paid staff as part of their annual accounting process.

Once finalised, the CUC expects to review the code once every four years "to ensure it is fit for purpose". It also anticipates making changes to its Higher Education Code of Governance to reflect the introduction of the new code.

A new universities regulator, the Office for Students (OfS), will become fully operational in April 2018. OfS chief executive Nicola Dandridge said that that OfS "will not hesitate to intervene" on unjustified levels of pay.

Higher education employment law expert Rob Childe of Pinsent Masons, the law firm behind Out-Law.com, said that parts of the code would require "a step change from existing practice" from universities.

"There is currently significant public and media scrutiny of vice chancellors' pay, but also around the whole issue of remuneration of senior staff in general," he said.

"The draft code is clearly designed to assist HE institutions in putting the necessary steps in place to demonstrate effective leadership and stewardship in relation to setting senior remuneration, but it also sets out a number of legal and governance 'watch-outs' that institutions will want to address sooner rather than later. We would recommend that HE institutions engage with the draft code now, with a view to getting to grips with the legal and governance issues that it raises," he said.