Committee of University Chairs – Draft Remuneration Code Consultation

Of interest to governing bodies of higher education institutions (HEIs), university registrars, and governance advisors working in higher education.

The Committee of University Chairs has released draft guidance on pay in the higher education sector, including a voluntary HE Remuneration Code. The Remuneration Code works on an ‘apply or explain’ basis, allowing for the diversity of the sector and the problems facing HEIs both in their business structure and in attracting and retaining quality staff.

It recognises the need to show stakeholders that pay decisions are evidence-based, proportionate and allow the HEI to work effectively. It is also conscious of the need to retain public confidence and to show value for money in using resources.

The draft code is centred on encouraging institutions to achieve 'fair and appropriate' pay for senior post holders. It will be for each HEI to decide which members of staff will fall under this definition, but the head of institution must be included.

The aim of the guidance is underpinned by three elements:

1. A fair, appropriate and justifiable level of remuneration
2. Procedural fairness
3. Transparency and accountability

The main body of the draft code and the explanatory notes provide further detail on each. The Committee of University Chairs is seeking opinions on whether there are additional elements to 'fair and appropriate' pay, and also whether there are further principles to each element beyond those identified in the draft.

Element I – Fair, appropriate and justifiable level of remuneration

The guidance seeks balance between providing value for money in the use of HEI resources and attracting and retaining quality staff. These are set out in 10 principles, including the following considerations:

• The context in which an HEI operates must be taken account of.
• Remuneration must be linked to the value provided by an individual. A role’s value range should be based on several components, such as the complexity of the activity, impact, knowledge, skills and external comparisons.
• A robust and consistent process should exist for setting objectives and assessing an individual’s contribution.
• While allowing that pay can vary according to individual performance, the code does not imply that performance-related pay is needed for fair and appropriate remuneration, leaving this decision to individual institutions. Where an element of performance pay is used, the governing body should agree a clear policy and balance short and long-term objectives. The objectives and associated metrics should be published.
• If an individual fails to contribute as expected there should be consequences.
• Any severance payments must be reasonable and justifiable. Further detailed guidance on severance pay is appended to the draft. This includes a number of points which relate to the charitable status of HEIs.
• Where an individual makes more money from outside bodies in a private capacity, there should be a clear rationale for retaining that income. However, the value of working externally is acknowledged in the guidance. 

Element II – Procedural fairness

The code sets out that procedural fairness requires that pay is set 'through a process that is based on competent people applying a consistent framework with independent decision making using appropriate evidence and assessing the values of roles, the context and individuals' performance in them'. The seven key principles underpinning this are:

• Senior post holder pay should be determined in the context of each HEI's approach to rewarding all its staff.
• No individual can be involved in deciding their own remuneration.
• Remuneration committees should be as independent and expert as possible. Further guidance is provided in the explanatory notes and should be used with the relevant passages of the HE Code of Governance.
• Decisions need to be based on robust evidence.
• The remuneration committee must justify these and other recommendations to the governing body and other stakeholders.
• The head of institution must not be a member of the remuneration committee.
• When considering the pay of the head of institution, the remuneration committee must be chaired by a senior independent governor who is not chair of the board.

The latter two bullet points will be reflected in changes to section 3.14 of the Higher Education Code of Governance, alongside which the new guidance should be read. 

Under the amended version, the vice-chancellor or other senior staff cannot be members of the remuneration committee, as previously allowed, but may attend by invitation. They still must be absent for discussions that directly affect them. These are the only changes to the HE Code of Governance from the Remuneration Code.

Element III – Transparency and accountability

The guidance states that senior post holders must be fairly, but not excessively, rewarded for their work. The process for setting pay must be transparent and for senior post holders there must be an institutional-level justification for remuneration, taking into account the competitive environment, the value of the roles and institutional performance.

With regard to the head of institution, pay must be separately justified, published and related to the remuneration of all staff within the organisation.

Reflecting the collegial nature of HEIs, the code advises that aggregate senior post holder pay not normally increase at a faster rate than the average of all HEI staff. It requires that institutions publish a pay multiple, illustrating how that multiple has changed over time and explaining any increase. 

The draft notes that over 80% of HEIs currently sit within a multiple range of 4.5 to 8.5. Pay set beyond this range should be justified to stakeholders and the regulator.

The Committee of University Chairs has included a suggested outline structure for a remuneration annual report to the governing body at Appendix 1. This would include: the remuneration committee's terms of reference, membership and meetings; the institution's approach to remuneration; institutional performance; payments to members of the governing body; and external appointments and expenses.

CGIUKI submission

CGIUKI is interested in the views of members on this draft and we are happy to hear from those involved in higher education and those with experience of senior remuneration in other sectors.

The draft guidance and consultation documents are available on the Committee of University Chairs website.

Please contact Craig Beeston, Policy Officer (Not for Profit) at cbeeston@cgi.org.uk by 23 February 2018 if you would like to offer your opinion.