University vice-chancellor pay, performance and (asymmetric) benchmarking

We study the pay of UK universities chief executives (‘vice-chancellors’) over a ten year period. Although there is a correlation between pay and performance, exploratory analysis doesn’t ?nd statistically signi?cant evidence that a change in performance leads to a change in pay, or vice-versa, which motivates us to look at other explanations. Instead, we ?nd strong support for an asymmetric or aspirational benchmarking to average behaviour, where those institutions with below average pay increase their vice-chancellor’s salaries quicker than those with above average pay, independent of performance. We simulate a model whereby di?erent institutions target di?erent places of the distribution of salaries and demonstrate that in?ation of pay can be explained by this behaviour.