Chief executive pay in UK higher education: the role of university performance

Remuneration for chief executives in UK higher education—known as Vice Chancellors (VCs)—has been on an upward trend in recent years, and VCs have received criticism that their performance does not warrant such reward. We investigate the relationship between VC pay and performance (rooted in principal agent theory), taking into account an array of other possible determinants. Deriving measures of VC performance is difficult as VCs are agents for various principals, and each principal may be interested in a different aspect of performance. We consider three measures of VC performance here: managerial efficiency as measured by data envelopment analysis; performance in university rankings produced by the media; the financial stability of the university. We construct a comprehensive data set, covering academic years 2009/2010 to 2016/2017, a period of considerable change in the UK higher education sector including rapidly-rising undergraduate tuition fees. Our results show that, once other possible determinants of VC pay are taken into account, the main measure of performance which affects VC pay is the one based on media rankings. Thus the agents (VCs) appear to be rewarded for delivering against this performance benchmark which is likely to be of interest to a variety of principals. This result however varies by type of university suggesting that the labour market for VCs differs by mission group.