Organizational Performance and Executive Pay in Israel's System of Higher Education

In the business sector, the relationship between performance and pay is mostly measured with reference to an organization's business results on the one hand and the pay awarded to its senior management on the other hand. The present research shifts the analytical focus to the third sector and to higher-education institutions, assessed in their case—where the notion of profitability loses its relevance—on their performance as perceived by their clients, namely the student body. Our research results point to a positive, strong and significant relationship between performance and executive pay (with a one-year lag) and to a positive, weak and significant relationship between executive pay and performance (again, with a one-year lag). Furthermore, it is the state-funded (hereinafter: budgeted) colleges, where executive pay was by far the lowest, that achieved the highest satisfaction score (averaging 2011 and 2013), despite a slight drop in satisfaction observed in this category from 2011 to 2013. Taken together, however, higher-education institutions saw their satisfaction scores increase in 2013 compared to 2011. The paper leaves aside research performance rankings of higher-education institutions, due to the fact that most institutions in Israel are teaching oriented. As a matter of fact, only few Israeli universities are ranked by international ranking organizations. Furthermore, unfortunately, Israel does not have a formal system of higher education institutions research rankings. In the paper, a large body of literature on performance-related pay in school teaching is not covered