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Introduction and aim
This briefing note explores the work of the remuneration committee. The committee’s work is focused on determining the remuneration of the head of institution and other designated senior post-holders. The committee operates with delegated authority, and reports the basis of its decisions to the institution’s governing body.
All governing bodies are required to establish a remuneration committee in order to comply with either the Committee of University Chairs (CUC) Higher Education Code of Governance1 or the Scottish Code of Good Higher Education Governance.2 Although the two Codes adopt a similar approach to remuneration, there are important differences in both the required composition and how the remuneration committee is expected operate. Many of the differences between the two Codes are highlighted in the following discussion.
Purpose and duties
Under the delegated authority of the governing body, and as detailed in the committee’s terms of reference, the role of the remuneration committee is to determine the remuneration of the head of institution (normally the principal or vice-chancellor) and other identified seniorpost-holders. The group of senior post-holders is defined by the institution’s governing instruments or determined by the governing body. As a result the remuneration of the executive team will normally falls under the remit of the remuneration committee, and in some institutions the salaries of a wider spectrum of senior post-holders is also included.
The remit of the committee covers all forms of remuneration, including bonus and severance payments. When reaching their decisions the committee is expected to safeguard public funds and be mindful of the public interest.
The Scottish Code states ‘the committee should be careful not to agree a severance package which staff, students and the public might reasonably deem to be excessive.’ The Code also goes on to say that ‘contracts of employment for senior staff should specify periods of notice of not more than 12 months, and should not provide for pension enhancements.’
Fundamental to the process of determining an appropriate level of remuneration is establishing clear and measureable objectives for the head of institution and senior postholders, against which performance is subsequently assessed. Setting a set of agreed objectives for the head of institution is normally part of the role of the Chair of the governing body, while for all other senior post-holders the setting of their objectives is normally undertaken by the head of the institution or their nominated representative.
Often during, but certainly at the end of, the appraisal period, which normally lasts a year, the appraiser and the individual being appraised will be expected to discuss the extent to which the individual is meeting or has met their agreed objectives. In arriving at a judgment, the appraisal should seek objective evidence to inform their assessment and take care to ensure the individual’s own contribution is distinguished.
Compliance with the CUC Code requires the committee to have a majority of independent members, while the Scottish Code states ‘there should be at least three independent members (not necessarily members of the governing body), one of whom should be a member of the finance or equivalent committee’. The requirement that one member of the committee should also be a member of the finance committee recognises the need to mindful of affordability when determining remuneration. For this reason, it is common in a number of institutions for the Treasurer, where such a post exists, to be a member of the remuneration committee.
Members of the committee are expected to have appropriate expertise and both the CUC and Scottish Codes allow for the option of co-opting specialists, for example, in employment or remuneration onto the committee. This offers the facility of the committee drawing on specialist skills and expertise to inform its decisions. These skills may not be available from the membership of the governing body.
The head of institution can be a member of the remuneration committee (CUC Code) or attend meetings (Scottish Code), but must not be present when matters relating to their own remuneration are being discussed.
Frequency of meetings
Unlike other governing body committees, many of which meet regularly throughout the year, most remuneration committees tend to meet once or twice a year. This reflects the use of normally an annual cycle in the setting of salaries for senior staff.
Chair of the committee
Although not a requirement of the CUC Code, many institutions follow the practice of the Scottish and UK Corporate Governance codes and appoint a Chair of the remuneration committee who is not also the Chair of the governing body.3 This offers the benefit of separating the roles of assessing the head of institution’s performance and advising the committee as to the appropriate level of remuneration from the role of chairing the committee.
Head of institution’s role
The head of the institution will normally either be a member or attend meetings of the remuneration committee. They will be expected to provide advice and guidance to the committee on the remuneration of all members of the senior staff team, with the exception of their own remuneration, whose determination falls within the remit of the committee.
Institutional policy or approach
In establishing the institution’s policy or approach to remuneration, including levels of salaries and any other payments, the committee will need to take into account a range of factors, including:
In setting the level of remuneration, the remuneration committee is expected to take account of comparative data. Comparative data offers a benchmark of the rewards paid to similar role in comparable organisations. These may comprise of a group of peer institutions against which the institution regularly measures its performance.
Comparative data is available from a number of sources, including the survey of Vice-Chancellors’ salaries undertaken by CUC, data collected by the Universities and Colleges Employers’ Association (UCEA) and from information published annually by the Times Higher Education (THE). The THE data is drawn from the individual annual report and consolidated financial statements produced by each higher education institution. The data for each of the sources is updated annually, although the data used by UCEA and THE is based on the preceding, rather than the current year.
Role of comparative data
The use of benchmark data is expected to inform the level of remuneration, rather than be the sole basis on which the committee makes a decision. The risk in only using comparative data is illustrated by a warning incorporated in the UK Corporate Governance Code. For private sector companies the Code suggests a remuneration committee ‘should use such comparisons with caution, in view of the risk of an upward ratchet of remuneration levels with no corresponding improvement in corporate and individual performance’.5
When reaching a decision the committee will need to balance a wide range of factors, including the individual’s performance against their agreed objectives, the institution’s policy on remuneration and comparative data. It will also need to sensitive to the wider context, including the level of pay increases being received by the institution’s wider body of staff and broader debates about the levels of remuneration received by executives and senior managers. In reaching its decision the committee may also wish to take account of the level and any changes in remuneration made over a number of years, thereby considering the pattern of reward and performance over a longer period of time.
In making its determination, the committee should ensure its decision-making processes are both rigorous and objective, and that its decisions can be justified both to the wider governing body and to different stakeholders and interested parties.
Reporting back to the governing body
The remuneration committee reports its decisions to the governing body, outlining the basis on which it has reached its decisions. The expectation (and requirement of the CUC Code) is that the committee will report at least annually to the governing body. However, detailed information on an individual’s remuneration is not normally shared with the governing body.
The Scottish Code requires that sufficient information is provided ‘to enable the governing body to satisfy itself that the decisions are compliant with its policies.’
Questions to consider
End notes and further reading
Associate Director, Governance
Aaron Porter was appointed as Associate Director, Governance at the Leadership Foundation (LF) in January 2014. He is also a higher education consultant and a freelance journalist, having previously been president of the National Union of Students (NUS) in 2010 – 2011. He is also an associate for the LF and the Higher Education Academy (HEA), on the advisory network for the Office for Fair Access (OFFA) and CFE research and consultancy alongside a number of other portfolio roles.
During his high profile term at NUS, he was the first NUS President to be invited as an observer to the board of the Higher Education Funding Council for England (Hefce) and to address the annual Universities UK Conference in September 2010. In addition he served as a non-executive director on the boards of UCAS, the HEA and Endsleigh Insurance. He also co-chaired the Beer/Porter Student Charter group which reported to Higher Education Minister David Willetts in January 2011, and was a member of the Hefce Online Learning Taskforce and the review of External Examiners chaired by Dame Janet Finch both conducted in 2010/11.
Previous to his term as NUS President, Aaron served two successful terms as NUS Vice-President (Higher Education), helping to build NUS’ reputation with the sector. He also served as a non-executive board member for the Office of the Independent Adjudicator (OIA) and on the board of the European Students’ Union (ESU). He was also a member of the Burgess Implementation Steering Group and the National Student Survey Steering Group. In 2009, he was part of the UK delegation to the European higher education ministerial summit in Leuven, Belgium.
Aaron studied BA English at the University of Leicester and graduated in 2006. He then spent two years as a sabbatical and trustee of the students’ union, he was also the founding chair of Unions94 (the students’ unions of the 1994 Group). As a student he was editor of the student newspaper, ‘The Ripple’.
Governance Web Editor
David Williams is Governance Editor for the LF website. He has over 25 years experience of working in higher education, as both as an academic and senior manager. During this time he has worked closely with governing bodies, contributing to, and supporting their work
in a variety of ways.
As Governance Editor, David works with the wider LF community and its members to ensure the governance website offers a repository of information and signposts recent developments in the field on governance.