The main lecturers' union has welcomed proposals for vice-chancellors to have a portion of their pay withheld if they fail to perform well in their job.

Individual heads could lose up to 10 per cent of their pay under the plans set out this week by Will Hutton in his final report on fair pay in the public sector.

Mr Hutton, executive vice-chair of the Work Foundation, was commissioned by the government to lead a review on the issue.

An interim report published in December revealed that universities had the highest pay differential between the top and bottom earners across the public sector, with vice-chancellors earning on average 15.35 times the salary of porters and cleaners. For Russell Group universities, the ratio rose to 19:1.

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In his final report, Mr Hutton drops the idea of setting a maximum pay differential of 20:1. Instead he proposes that chief executive and vice-chancellor pay be linked to performance, with a percentage of the salary "at risk" if the incumbent does not hit targets. Other executives would be able to opt in to the scheme.

Sally Hunt, the University and College Union general secretary, said the lack of transparency behind large pay rises for vice-chancellors had been "embarrassing for the sector".

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"We have never opposed people being well rewarded for a job well done...(but) vice-chancellors' pay has never been subjected to the same scrutiny as staff pay, and we will be looking with interest at these proposals," she said.

But she warned against using "simple parameters" to assess achievement. "We must not allow a situation to develop, for example, where a vice-chancellor with one eye on a bonus axes a couple of costly, but hugely important, departments to balance the books at the end of a difficult year," Ms Hunt said.

Under Mr Hutton's proposals, universities would be forced to publish the multiple of vice-chancellor to workforce median pay each year, and explain any changes.

The head's salary would be set by a committee that included staff representatives, and the Senior Salaries Review Body would be given powers to intervene.

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Mr Hutton said the proposal would ensure that pay packets were "deserved and understandable and reasonable" in size.

The Universities and Colleges Employers Association claimed that publishing the pay differential between the top and median salary would simply reveal ÖйúAƬ to be in line with the NHS and local government, with a ratio of 6:1.

Despite the decline in public investment in universities, Mr Hutton told Times ÖйúAƬ that the recommendations still applied to the academy.

"Universities are not state bodies, but they are public bodies. They award degrees, which are used as a public currency, and we expect them to mean something. The idea that universities are in any sense private is not right."

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Meanwhile, about 200,000 university staff who are eligible for public-sector pensions learned last week that they face losing their final-salary schemes.

In a separate report, Lord Hutton, the former Labour work and pensions secretary, called for a career-average structure and the raising of the pension age to 66 by 2020.

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hannah.fearn@tsleducation.com