In part II, the barriers to reform in the university sector were discussed. It became clear that neither the governance structure nor the basic funding model was up for grabs. Also, one should not count on market forces, the unions, or the academics to be all that much help. None of the current reforms on the table are hence likely to achieve a reduction in the immense overhead that is dragging the sector down.
But what then can be done by the Commonwealth? Many of the ideas given by the commenters seem eminently implementable and would engender an on-going process of change: reduce the ARC/NHMRC red tape and channel more money via them to empower the academics; ask the Productivity Commission to do a report on the source of the administrative overflow; cut the rankings and ERA-type processes because they generate a lot of admin with almost no return and simply make more use of the ARC; have more competition via online-universities; have a governance group inside the education ministry to champion change. These all seem good ideas to me.
As to my own thoughts, there is another thing of real importance that the commonwealth can play with because of its position as the paymaster: it can mandate the pay-structure of the top of the universities. It can thus directly do something about the enormous salaries paid to the top.
With some Vice Chancellors making between 1 and 2 million dollars per year (including bonuses), several times more than the highest-paid VCs in New Zealand, it is a clear equity issue. Yet, it is also a governance issue: universities are non-profit organisations with public protection and subsidies. To hand out huge salaries to anyone in such sheltered organisations means you engender a layer with an enormous appetite for grandeur and who need protection inside their own organisation from those less paid who think they do the work. It thus encourages a burgeoning administration protecting the high income layers.
The same issue has come up in many countries, and one particular solution springs to mind: to set a maximum income at some percentage of top politicians, say the Minister for Education. So, Australia could take a leaf out of the recent reforms in the Netherlands and instigate a maximum remuneration for everyone in the university sector. The rule of thumb the Dutch have hit upon is 130% of the pay of a government minister, roughly equal to 350,000 AUS (see here for an explanation in English). This is now mandated as the maximum income not just for all civil servants, but all semi-government institutions too, including universities and hospitals. At the same time, all other forms of compensation were outlawed, including any KPIs, options, consultancy, etc.
A similar reform would be eminently possible and desirable in Australia, particularly for the university sector. It agrees with the reportedly biblical and Greek view that no one should earn more than 5 times as much as another. It also sets a maximum that is really still quite generous by historical and international comparisons: a 350,000 AUS salary would put one well high into the top 1% of all people in Australia and would constitute a normal Vice Chancellor salary in many countries. It would obviously be equitable, probably supported by the unions.
Above all, this is a policy that can actually be implemented by the Commonwealth: universities are publicly funded places and the Commonwealth can without much trouble demand that the people running the institutions that receive such huge amounts of public funds (via the ARC, NHMRC, HECS) abide by their wishes concerning salary caps. It needs nothing more than simple legislation.
What effect would such a rule have in the Australian university sector? Probably a very beneficial one. Not only would it improve equity, but at a stroke improve the incentives:
- It would reduce the importance of monetary incentives amongst university administrators and thus increase the importance of long-run payoffs like reputation and the opinions of outside stakeholders. This would be a major improvement above the short-run incentives most are under now.
- It would at a stroke make it less important for administrators to surround themselves with people who protect their own position because there will be much less of a queue of people wanting to topple them from the throne.
- It would scare away people who only want to be a university administrator for the money and thus increase the number who want to improve universities. This can only be a good thing.
- It would take away extreme risk-aversion for adverse media events or complaining students: once top administrators are paid what they are worth in stead of what they can grab, they no longer need to be as fearful of losing their job over this or that scandal. After all, since they are paid what they are worth, they can then go elsewhere and earn that same amount, or something close to it. Hence they would act much more calmly and rationally when it comes to investments.
Now, of course, those making huge incomes will immediately tell you that they are such fantastic talents that they simply would go to another CEO job paying them the same amount. This is pure myth as you should realise from a cursory glance at their previous careers: most Vice Chancellors were quite low-paid academics before they went into administration and don’t have a history of making large sums of money in the private sector at all. It is a myth to think they would take a job elsewhere if their salary is reduced to being only 3 times what they were making as an academic.