The European Universities Association (EUA) made an analysis of too what extent funding of European universities is based on performance and concludes that everywhere in Europe these funding mechanisms to some extent exist. This does not necessarily have to be a problem, but the EUA does note that there are some things to be counted for.
“It can be one way to increase the transparency of funding allocation and thus the accountability of spending. It might also support profiling and strategic positioning of higher education institutions, notably in the form of individual performance contract.”
To work in this way, an equal relationship between universities and ministries in the designing of these mechanisms is required, according to the EUA. In its report the EUA concludes that when this proper design is lacking it is “unsure to what extent [performance-based funding] helps raising the performance of universities with regard to teaching and research, due to the risks and unintended effects it can have. Therefore detailed steering through performance-based funding seems inadequate and would also undermine institutional autonomy.”
In its report the EUA also lines out what a sustainable university funding system needs. It needs to take account of the costs of universities activities that are to a high degree fixed input. This system should reward performance and allow institutions to invest in their future. “Sufficient and stable public funding is indispensable for universities across Europe to fulfill their mission and public responsibility.”
The full report can be found here