Timothy Devinney on Overpaid Vice-Chancellors

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In an excellent recent piece on his own website, Timothy Devinney looks at how the compensation of Australian Vice Chancellors compares to those of the UK and the US. He gave me permission to re-use his calculations. Below I give you the guts of his story which, if one uses updated figures from the ones he uses, gets you to the realisation that Vice-Chancellors at the GO8 and ‘Technology’ universities get 300% in total compensation of what Vice-Chancellors at comparable US and UK institutions get.

Timothy’s first and main empirical finding is that “Overall, the average compensation of a top 100 US public university president is A$480,409; that of a UK vice chancellor A$456,867; and that of an Australian vice chancellor A$721,607. ”

Now, that sounds like Australian Vice-Chancellors are ‘only’ paid some 155% of the compensation of equivalent US and UK Vice-Chancellors, doesn’t it? Not 300% by a long way. But this is where one should dig deeper into the data (explained in his Footnote 3).

Timothy’s data on the US is on total compensation, so includes bonuses and pensions and side-benefits. His data on the UK includes salaries and pensions. Yet his data on Australia is just salary.

In Australia, the salaries that you find in the annual reports do not capture all the elements in the total compensation package of the Vice Chancellors. It misses bonuses, superannuation and side-benefits. And these are large chunks of the total compensation package.

To start with bonuses, my recent post on the goings-on at QUT already mentioned that the average bonus for the Vice Chancellor plus Deputy Vice-Chancellors there was A$270,000 in 2011. That reflects an average bonus of around 40-50% for that layer of administrators.

Employer contributions to superannuation are not normally reported in Australian salary scales, but usually lie in the range of 14-17%.

If we add these probable bonuses and superannuation contributions to the stated salaries of all Australian VC’s (40% and 17% compounded), we get an average monetary compensation of A$1,118,000 per Vice Chancellor in Australia. And that does not yet include the chauffeur-driven car, the business-class travel, or other forms of additional compensation, but let’s be generous and pretend those don’t exist.

So if you just look at monetary compensations for the average Vice Chancellors, then the Australian ones get paid around 250% of that of the top 100 American universities and UK counterparts.

But of course we are then comparing the average Australian VC with the average VC of the better universities in America and the UK. This is not the proper comparison because Australian universities are not in the same league as the top 10 American ones where the salaries are of course higher. If you compare with the more appropriate level of American and UK universities (the bottom of the top 100), you find that you are looking at average total compensations of around A$400,000 in the US and the UK. Using that as a comparison gets you the stunning number that an Australian VC gets paid around 300% of equivalent VCs in the UK and the US.

If one then reflects on Timothy’s finding that the VCs at the GO8 and SJT/ATN universities in Australia get paid at least 20% more than the VCs of other universities in Australia, one should realise that one is looking at an approximate total compensation package of around 1.3 million for VCs at the GO8/ATN/SJT universities in Australia, bringing their compensation well above 300% of VCs at equivalent universities in the UK and the US.

Nice jobs if you can get them! And, as Timothy argues, we are clearly not looking at pay-for-performance, but rather at the compensation levels agreed between different layers of the same entity, i.e. between chancelleries and chancellery-appointed Senates!

As I argued in an earlier piece, one possible solution to the massive governance problem at Australian universities is to have a compensation ceiling wherein no-one in the universities administration can earn more than the Prime-Minister of the day. That would restrict Vice Chancellors to compensations considered normal in top universities in the US.

10 Responses to "Timothy Devinney on Overpaid Vice-Chancellors"
  1. Great post, Paul. Good to see you’re still keeping track of this and glad to see someone made the effort to make this comparison and provide empirical support to what people suspected. Another question of interest would be the earnings gap between avg. academic (and here my definition is constrained to someone who teaches and/or does research) and manager in Australia compared to the same gap in the UK and US. I imagine it would be substantially larger as well. I guess a big picture question coming from this is: does it matter for university performance? The VCs would argue they are compensated so well because 1) they make all the difference and 2) the corporate world pays millions and we run organisations just as large and complex or more large and complex than the corps.

  2. The issue of over compensation can never be resolved, even with so called independent salary setting tribunals, goverance structures or setting compensation to be no more than ‘similar’ jobs, since judgements are likely to be made relative to a cohort of over compensated exemplars (eg private sector CEOs etc).

    A better public policy solution would be to (a) impose no upper bound on salary packages and (b) impose very steep marginal tax rates on packages in the top 5% of the income distribution. At least then the money comes back to the government for redistribution.

    • I beg to disagree.

      It is the responsibilty of every enterprise to ensure that it has a salary administration program in place that relates salaries within the enterprise to markets outside the enterprise. There are are number of systems available to do this. Their commonality is that they all recognise that markets allocate salaries to positions based on know-how required, acountability and problem solving requirement.

      Universities, in this respect, are no different to commercial enterprises.

    • I agree that the issue is difficult. But mostly because those who have the power to set their own salaries also set the rules. So I can’t see how your ideas are any different – pretty much all politicians are in the top 5% of the income distribution and you are asking them to cut their own pay, and that of their buddies in senior positions in private firms. Seems just as unlikely as the salary cap for government owned/regulated entities.

      There are systems in place abroad that perhaps Paul might want to write about that have been tested to limit this kind of abuse from ‘government-like’ institutions.

      • Cameron in private companies the Board sets the rules, not the Executives. Of course some do it better than others. In a managed salary administration scheme the salaries of staff employees at all levels are linked to that of the MD or CEO, whose salary sets the cap. The MD or CEO’s salary is set by the Board.

        In the company for which I worked for 26 years a system like this works very well. It is a $65,000,000 company and the MD’s package is considerably less than the packages Paul is citing for VC’s, simple because is is linked to the market for equivalent positions.

        And of course politicians should not be setting their own employment conditions. Mind you, if a managed salary scheme was applied to politicians our PM would be probably paid considerably more – maybe not a bad thing.

  3. This is a useful discussion focusing on a particular sector. The strength of any argument which defends current VC remuneration would seem to be on shaky ground when competitor english speaking countries are so far below Australian arrangements; the genesis of some of this might be the relatively higher Australian dollar compared to the GBP and USD in recent years. Unlike asset prices which tend to adjust relatively quickly to such shifts, entrenched Australian wage and salary payments do not.

    Such circumstances should not result in poor governance in relation to salaries and related payments but it does require some intestinal fortitude on the part of those setting the payments to look at competitor country arrangements when the domestic currency has moved dramatically upwards. This is more likely to occur in a sector such as mining where, as price takers in most circumstances, the sector needs to compete globally.

    Of course the self interest of those setting such arrangements domestically might also be relevant.

    More generally, while company remuneration programmes usually see CEO/MD salaries set in such a way that they put a cap on the salaries of others in an organisation, the same is not true for total remuneration where individual roles can attract bonus / performance payments and / or commissions which result in payments well in excess of the CEO’s total remuneration. Also a senior office based in Tokyo or New York may well receive compensation well in excess of the CEO to cater for non domestic living arrangements.

    The latter situation aside, remuneration payments can be blurred by the engagement of “contracted” entities which are essentially single person “companies” performing key roles. The ATO has taken a cudgel to some of these arrangements but in a range of entities there can be a significant distortion in the overall remuneration arrangements which are not always “transparent” when analysing corporate remuneration structures and payments.

    It is not clear to the uninitiated whether such circumstances also exist in our learning institutions.

  4. The problem is not only due to the Australian dollar. Australian uni VCs are paid 50% more than their US equivalents. The dollar has appreciated about 30% in the past four years. If you go back to, say 2007, Australian uni VCs were paid more than US and UK presidents even then. Nor does comparing Aussie VCs to CEOs work since, as many empirical studies have shown, CEOs are badly over compensated as well.

    To me, this is a classic case of weak corporate governance arrangements being exploited by encumbents. These positions are effectively publically funded, and require oversight from a stronger body than a University Senate.

    The mere fact that performance bonuses are approaching 50% is suspicious. I am not against the idea of incentives, but thier scale adn strucure must be realistic. There is no evidence that paying incentives of more than around 20-25% of salary generates better performance. It more often becomes a perverse incentive to falsely report performance in order to obtain the bonus.

  5. “To me, this is a classic case of weak corporate governance arrangements being exploited by encumbents. These positions are effectively publically funded, and require oversight from a stronger body than a University Senate.”

    Exactly my thoughts. A textbook example.

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