Universities could be funded according to their ability to produce employable graduates, as the Government seeks to measure their success in "up-skilling the workforce".
The prospect of gearing funding to take graduate employment data into account has been raised in a report by the Higher Education Funding Council for England.
While making it clear that there is no immediate plan to implement such a regime, Hefce says that a graduate employment indicator "has the long-term potential to be one of a basket of measures that could collectively be used as a basis for incentive funding mechanisms".
Roger Brown, professor of higher education at Liverpool Hope University, said funding of this kind would be "extremely dangerous".
"All it would do is reinforce what we already see of students only wanting to study subjects that will get them an immediate job, often at the expense of subjects that might be better for their long-term development.
"Similarly, institutions will do whatever they need to do to get the money. It is a particularly daft idea."
The Hefce paper was produced for Universities Secretary John Denham as part of a series of reviews to map out the development of the sector to 2020.
Mr Denham asked the funding council to investigate new ways to measure the success of different universities.
In his letter to David Eastwood, Hefce's chief executive, Mr Denham asked Hefce to examine measures in five areas: research; innovation; teaching; widening participation; and the "up-skilling of workforces".
Hefce warned that "by limiting our thinking to the five policy areas identified by the Secretary of State, we potentially limit institutions' contributions to their students and wider community".
Professor Brown added: "There's no reference among those headings to the development of scholarship, no reference to what higher education is ultimately about."
Minutes from a Hefce board meeting in July also reveal confusion within the organisation, noting concerns over "a lack of clarity about the question being asked", while the final report points out that Hefce has been using performance measures for years, including to drive funding.
Examples of this include the research assessment exercise, the higher education innovation fund and widening participation allocations. Despite its familiarity with performance measures, Hefce is cautious of them throughout the report, with many of its recommendations coupled with caveats.
It warns that measures must be reviewed regularly to ensure they do not become counterproductive, and that "early warning systems" are needed to pick up the distortions in behaviour that they can cause.
However, it does see scope for expanding its analysis, particularly to develop new "value-added" measures.
This approach aims to give better insight into the impact an institution has on its students and the economy, but setting it up so that different university missions are taken into account is very complex, the report says.
"Institutions are different; colleges and universities do not all seek to add the same kind of value to students' development. We would need to assess value added against a university or college's chosen aspirations and mission. To do this could be very fiddly and we would need to consider the cost benefit."
Despite the complexities, the paper says that devising such measures is "not impossible" and that, as they have been used successfully in Australia, "it may be time for us to revise our position".
Although ruling out support for an official league table, it suggests that "spidergrams" could be used instead to create an online tool to illustrate performance in a range of areas.
UNIVERSITIES LOOK FOR INDUSTRY CREDENTIALS
Universities are starting to consider "industrial credentials", when recruiting academic staff, as well as research and teaching capabilities, according to a report.
The Higher Education Funding Council for England surveyed 129 universities and found that 56 per cent had introduced changes to recruitment, assessment, reward and promotion criteria to encourage staff participation in "knowledge transfer".
Meanwhile, the University of Lancaster has changed its appointment procedures for senior managers, including pro vice-chancellors and deans, to open up recruitment to external and non-academic candidates.
"A pro vice-chancellor with a successful career in retail management ... now seems a much closer prospect.
"Such people often have little understanding of our academic core values," wrote one academic in a university newsletter.