Chief Academic Officers (Vice Chancellors) Compensations and Universities Performance

Abstract

Remuneration for Chief Academic Officers (CAOs) in UK higher education—known as Vice Chancellors (VCs)—has been on an upward trend in recent years, and they have received criticism that their performance has not warranted such reward. I investigate the relationship between CAO-VC pay and performance (rooted in principal agent theory), taking into account an array of other possible determinants. Deriving measures of CAO-VC performance is difficult as VCs are agents for various principals, and each principal may be interested in a different aspect of performance. I consider three measures of CAO-VC performance here: performance in the Research Exercise Framework (REF); performance in university rankings produced by the media; the financial stability of the university managerial; efficiency as measured by data analysis. I construct a comprehensive data set, covering academic years 2000/2001 to 2016/2017, a period of considerable change in the UK higher education sector including rapidly-rising undergraduate tuition fees. My results indicate that the agents (CAOs-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 labor market for CAOs-VCs differs by mission group.
Therefore, in this thesis, I examine the potential factors that affect universities performance in different time horizons. Specifically, I first question whether the remuneration of CAOs-VCs reflects the academic excellence of their institutions. Then, I investigate the impact of CAO/VCs with DVC/PVC/VP and employees pay gap on university performance. Further, I question whether the CAO/VCs pay gap can be viewed as an indicator of human capital or the result of inefficient contracts.
First, I investigate the association between Chief Academic Officers’ (VCs) compensation and universities performance. Using two unique newly introduced indexes, the University performance (index) and the Lifetime work experience index, I find that generously compensated CAOs (VCs) contribute to better university performance. Interestingly, while the level of CAO/VCs remuneration is positively related to general managerial skills, as proxied by the diversity of their prior work experience, such skills are not associated with superior university performance. Additional tests indicate that the positive association between CAO/VCs compensation and institutional academic performance is enhanced by managerial discretion, whereas generalist CAOs/VCs earn higher compensation when they have greater career concerns. Overall, the results inform the ongoing debate on the appropriateness of remuneration levels for Chief Academic Officers (CAOs) and the literature on underlying causes of rising compensation levels in academic institutions.
Second, the study investigates whether tournament incentives among top officials of the institutions impact university performance. Using manual collected data, the study documents that Chief Academic Officers (henceforth CAOs) who lead universities with greater compensation gap between the average employee pay in the university and other top executives, contribute to their better performance. In support of tournament theory the more skillful candidates with prior experience as CAO/VCs win the competition. Pay gap is more pronounced in institutions located in London and the north of England.
Finally, I investigate the huge annual CAOs/VCs compensation increases that have occurred. I consider the impact of the research exercise framework (REF) announcement on CAOs/VCs remuneration. I find that success in this framework creates opportunities for compensation increases. I further look what happens following the appointment of new CAO/VCs and, surprisingly, I find that the new incumbent receives less than the predecessor. Lastly, I look on the CAOs/VCs behavior during the last year in post. Outrageous behaviors account align with dramatic increases in payment.
This thesis provides innovative evidence not only broadening the scope of research into different areas of executive compensation-related studies but also contributing to a wide range of literature, including network development, geographic dispersion, tournament incentives and top-level education. Importantly, studies included in this thesis may provide practical implications for executives-employees to make efficient employment decisions.

Date of Award	1 Apr 2020
Original language	English
Awarding Institution	University of Bath
Supervisor	David Newton (Supervisor)