Background

Public universities in Australia received much of their operational funding from the Commonwealth Government until 1989. Since then, successive governments have signalled the need for greater self-reliance, and whilst student contributions as a percentage of course fees has approximately doubled, the pressure to become more commercial and develop new revenue streams continues. Some universities are starting to consider commercial activities that have little or no connection with the university's core educational functions or purpose.

Against this background the roles of University Councils, and the responsibilities of Councillors, have increased in scale and complexity. Perhaps a tipping point has been reached, where the level of professional contribution required by stakeholders, and the need to attract and retain competent and diligent Councillors is greater than that which can reasonably be expected of volunteers. We've certainly noticed an increasing interest in remunerating Councillors.

In this article we canvass some pay governance issues that need to be managed by University Councils that resolve to adopt fee based Councillor service models – the key questions being:

  • how much does the University want (and need) to pay Councillors?
  • will you undertake market testing to assess the appropriateness of fees paid to your Councillors?
  • will all Councillors receive the same fee? If not, how will fees be determined as between Councillors?

Contractual arrangements

Bringing Councillors onto the payroll highlights the need for appropriate contractual arrangements – perhaps similar to non-executive directors of companies. The contract the University has with the Councillor will cover typical non-executive scenarios. Terms may cover scope of appointment, term, retirement, basis of remuneration, superannuation, allowances and reimbursement, D&O indemnity insurance premiums, service on university organisations, trusts, and companies, and cover potential issues including conflicts of interest, protection of university property including IP, use of university property, and clarify service expectations to protect both the Councillor and the Council.

Aggregate fee pools

University Councils adopting fees need to consider how they will establish, maintain, limit and disclose appropriate funding levels for Council. It's a sensitive topic because the Council is effectively taking both the role of steward and beneficiary – therefore agreeing fees on a Councillor by Councillor basis is not appropriate stewardship of public funds.

The aggregate fee pool is a simple approach to setting and capping the costs of stewardship or governance of an organisation. Listed company boards and superannuation fund boards manage fee stewardship through aggregate fee pool systems – which may provide a reasonable model for university councils. Under an aggregate fee pool system, boards periodically ask shareholders by resolution to approve a pool of fees from which non-executive directors are remunerated - both the aggregate fee pool and fees received by each director are disclosed. Boards are authorised only to provide fees in total within the approved aggregate fee pool. This system is transparent and includes independent approval by the owners of the company.

In the case of superannuation funds, where fund members are not owners, boards nonetheless seek periodic independent review of their existing fee pool and disclose fees received by board members. In both company and superannuation funds the use of an aggregate fee pool with headroom provides the means for the stewardship body to appoint and remunerate additional board members within an approved aggregate fee pool. It may be an approach worth considering at your university if you do have an increasing number of paid Councillors.

Fee levels

University Councils that do provide fees periodically check or benchmark those fee levels in the not-for-profit market. All but one of the Australian universities that do provide fees follow this practice. That said, the practice of providing fees is not consistent across all 40 universities.

Our observation would be that some older more established universities with strong research reputations and deep funding are able to maintain a waiting list of prospective Councillors, whilst younger and typically regional universities with a teaching focus may have more success attracting and retaining councillors if a reasonable level of fees were available.

Current fee levels in regional universities indicate that an aggregate fee pool of around $500k per annum would be sufficient for a Council comprising around 10 members.

Fee differentials

Establishing an appropriate fee model depends on whether Council wishes to differentiate between roles in terms of fees. Asking the following question is always helpful – is the Chair's preference to delegate the workload of Council evenly across members? If yes then a "bundled" fee model is generally used – all of the workload is "bundled" into a single cover-all fee for all Councillors excepting the Chair, reflecting equivalent contributions. Reasons for taking this approach include building teamwork in a Council with a majority of "new" members, or a preference for a simple fee model.

If the answer is no then an "unbundled" fee model may be established, in which base fees for Council attendance plus additional fee amounts for committee chairs and committees may be used. In a small number of organisations the workload simply cannot be evenly distributed.