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University CEOs

Slate has an interesting article on the high remuneration of US university presidents and vice-chancellors, whose pay in real terms has increased substantially over the past two decades. Is this a further manifestation of the higher education bubble (see earlier post) in the US? Have increased tuition fees resulted in higher university CEO pay? 

According to the study carried out for Slate, it seems that the upward movement in pay comes from the fact that a couple of decades ago, the pay of university presidents was benchmarked against the private sector instead of the public sector. Consequently, as executive pay has gone up in the private sector over the last few decades so has the pay of university CEOs. 

Could there be another reason? One possibility is that the expansion of the university sector over the past few decades has resulted in universities becoming large, diverse and complex organizations, and in order to attract the best managerial talent, universities have to pay more. University CEOs have to be top-notch academics and good at managing large complex organizations. As most academics make poor managers, the talent pool may be pretty small! Hence the premium paid to university CEOs.

Another explanation is that, as with corporation CEOs, university CEOs have captured the mechanisms through which university CEO pay is determined. There is no evidence to support this hypothesis, but it nevertheless needs some serious consideration. There is maybe a PhD topic here - the evolution of the governance and performance of universities.

BTW, this phenomenon is not just limited to the US - VC pay in the UK is also very high (click here and here). This may simply reflect the fact that universities operate in a global market, and that US universities set the benchmark for other countries.

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