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.