We study the relationship between academic salaries and research performance. We use individual level data on the salary of all UK university professors, matched to the performance of departments from the 2014 government evaluation of research. Our empirical analysis shows that both pay level and pay inequality in a department are positively related to performance. It also shows that the pay-performance relationship is driven by a feature of the research evaluation that allows academics to transfer the affiliation of published research across universities. Our findings can be rationalized by a simple model of university pay determination, which shows how the observed pay-performance relationship can be explained by the incentives inherent in the research evaluation process.
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