University reform, part III: so what can be done?

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? 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 brass in 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 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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 and often unsuccessful 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.

13 thoughts on “University reform, part III: so what can be done?

  1. those making huge incomes will immediately tell you that they are such fantastic talents that they simply would go to another CEO job

    If they actually did go, wouldn’t we all simply applaud a highly desirable outcome ?

    After all the discussion thus far, Paul, my strong impression is that things have got to this state because:

    1) like shareholders in major corporations, neither we the people nor they the government feel any real ownership or control of universities (or even of K12 institutions, come to that) – and, in general, no sense of responsibility, either.

    2) neither we the people or they the government actually have any idea of what the problems are and wouldn’t understand, or enthusiastically support, any proposed solutions.

    A long time ago, I came to understand the Law of Minimum Necessary Discomfort: that each problem situation has to reach a certain minimum level of discomfort (to just the right people) before there can be acknowledgement of the issue and some determination to fix it.

    As per my comment in your Part II, I don’t think we are anywhere near the minimum level of discomfort yet. And I also recall Machiavelli’s comment on change: it brings lukewarm support from those who will benefit and frantic opposition from everybody else.

    So, all the best of luck.

  2. Paul, I have now brought up my next post. I am consciously writing to a degree in isolation from your discussion. I am trying to make the problems as i see them real. Each story is drawn from the actual, but merged in combination.

    For some obscure reason that I don’t understand, I cant post the link. But it’s up front on my blog,

    • Found it. Nicely written and spot on in terms of what is going on. You make people sound a bit nicer and less concerned with their personal agendas than they are but the day to day bustle is just as you describe. It also nicely illustrates BrueGleens point above about the system needing a minimum level of discomfort to get any real change.

  3. Thanks, Paul.. As I said, it’s an amalgam. On BrueGleen, the problem is the size of the minimum level! Tomorrow I want to try to bring the horizontal slice alive. That’s harder. It’s more theoretical. For example, what do we actually mean by standards?

    • Jim,

      Quite – and also, who are “just the right people”.

      If I may, I’ll tell the story of how, several decades ago, I first came to see the Law of Minimum Necessary Discomfort (Law of MND) in action: There was a paricularly dangerous uncontrolled intersection near where I lived the had seen 6 or 7 fatalities over a number of years. Naturally, all us locals saw this a a problem (our MND level had been reached) and we wanted traffic lights installed. But the local council dallied and dithered.

      Then, one night, there was a particularly bad collision at the intersection involving the very gory death of a pregnant woman. Then, the television news cameras turned up. Even when censored for tv viewing, the resultant publicity was enough to great raise the level of discomfort of the councilors – there was traffic lights on the intersection within a week.

      Thus it was clear that the Law of MND had worked a treat on the councillors (just the right people) to both force acknowledgement of a problem and a determination to fix it, and that our (local ratepayers) longstanding acknowledgement of the problems and desire to have it fixed played virtually no part in the denouement.

      It’s a bit like some climate scientists and supporters have had an awareness forced on them that “just the facts, maam” doesn’t cut it. There must be that MND to get the message across. So I look at the recent USA east coast and Sandy events abd think: oh, just like our intersection – some people are now, after some serious MND, noticing that there might be a problem. But they are not “just the right people” who are, as yet feeling no discomfort at all.

      So I just take the Law of MND as a meme for formulating strategy and tactics by those who aren’t “just the right people” to get at those who are.

      Like I said: all the best of luck, Paul.

  4. With some Vice Chancellors making between 1 and 2 million dollars per year (including bonuses), several times more than the VCs in New Zealand, it is a clear equity issue.

    Do you have an economic theory as to why they are so high in the first place? I mean in terms of supply there must be plenty of people willing and able to do the job, so it cannot possibly be supply shortage. In terms of demand there are strictly limited places so it cannot be demand driven.

    In theory at least the Minister for Education could at any time force down their salaries and could have done in the past, and there is at least some incentive for that to happen with government budgets being at least a little bit under pressure to balance (not much pressure, and they have not yet come close to balancing, but that’s another story). The conclusion must be that the VC’s have something giving them leverage to demand the indulgence of the Minister. What do you think that could be?

    I might plumb for Velben goods? Typical Minister of Education would not have the capability to differentiate anyhow, thus might believe that spending extra gets a better result (with nothing else to go by).

    Maybe the pomp and majesty is actually of value to the government itself… after all Universities tend to be a convenient political tool, indoctrinating blind obedience in the public and lending the trappings of scientific authority to what would otherwise be bald-faced political decisions. Perhaps you actually need someone massively overpaid in order to command the necessary awe and respect. Otherwise someone will shout from the back, “He’s not the messiah!”

  5. Cearly people in charge of organisations like Universities need to be paid well and fairly, however the first rule is that if someone says they can get more money elsewhere then they should be told to go off and get it. If money is their motivation then they are not that interested in the organisation they are working for. There are a lot of very talented people out there and we should be widening the gene pool when looking for potential CEO’s and we should also always remember that cemetries are full of indespensible people.

  6. A second problem you need to deal with if you want to fix up the VC problem (and it exists everywhere in the system), is the inputs as outputs quality judgement method. It’s no surprise that VCs spend money on worthless projects etc. . if they are rewarded simply for spending money and not the outcome of it. I work at a place where appalling judgements were made in terms of spending money, but it obviously looked so good (i.e., the spending) to someone that he got promoted to poor old ANU.

  7. Tel,

    I suspect the Canberra ministries have so far gone along with the ‘we are a corporation and thus need to pay corporate salaries’ fairytale. Essentially a battle they don’t yet have the stomach for because public outrage is not sufficiently high.

    Steve, Conrad,

    agreed. The basic mindset of command-and-control is a problem in many places. One wonders how long that fad can last. I suspect till a major recession.

  8. The federal government did use to control salaries in publicly-funded higher education, though I am not sure whether these affected senior management. But salary controls were abandoned 20+ years ago, as part of the general move to enterprise bargaining.

  9. The high salaries are part of the cult of managerialism. The university as a very large corporation should pay its CEO appropriately. Like all corporations, it’s a cut-throat place hated by all except the latest batch of bureaucratic winners who hate each and every other person in the place.
    The university as a community of scholars has different values. Those who actually love their work, and love the society of like-minded people are happy with moderate salaries and modest living spaces. They go on working in their retirement, and their greatest joy comes from passing on their culture to young people. With the right people, universities can be less formal, far less bureaucratic, more productive, less competitive, less ugly, and less of a drain on the public purse.

    • The problem still remains, how we decide what makes one VC better than another? Just like the problem of deciding what makes one CEO better than another… sure, cut-throat, yeah, get it, but without a clear performance metric “cut throat” just translates to “has connections”.

      It is all very well to have a competitive marketplace and recognize that some company is performing better than the others… then you have something to base your decision on. However, in a decidedly uncompetitive marketplace, where territories are pretty much handed out by fiat, what then?

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