University of Illinois officials plan to dismiss Chancellor Phyllis Wise rather than accept her resignation and pay her an agreed $400,000 bonus.
But President Timothy Killeen said he intends to offer her a faculty position in which she would report directly to him.
Killeen and university trustees announced those moves at a meeting of a trustees committee Wednesday, nearly a week after Wise tendered her resignation.
The action followed calls by Gov. Bruce Rauner and others to rescind the award in the aftermath of the school's announcement last week that Wise and other administrators had used their private email accounts to avoid public scrutiny of their communications on university business.
The university also faces lawsuits from former athletes alleging poor treatment by coaches and staff, and a lawsuit over a decision to rescind a job offer to a professor who had written Twitter messages critical of Israel.
Wise had been hired as chancellor for five years, but is leaving a year early. The university said she worked out a retention agreement to receive $100,000 for each year worked, and President Timothy Killeen had approved the $400,000 payout pending the committee's approval Wednesday.
Killeen earlier announced that Barbara J. Wilson, dean of the school's College of Liberal Arts and Sciences, would be Wise's interim replacement.
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The Rauner administration on Tuesday had pushed trustees to reject the bonus for wise. Deputy Gov. Trey Childress wrote to the chairman of the board of trustees, saying the administration had "deep reservations" about the deal in the midst of a state budget crisis. The Republican governor and Democratic lawmakers have been deadlocked on a plan to solve it since the spring.
Childress said the bonus would be "a major step in the wrong direction and against the best interest of the" university and the state.
One trustee, James Montgomery, warned that the letter could be seen as undue pressure from outside the university, since the school relies on the state for a substantial portion of its financing.
The state provided about 11 percent of the university's operating budget during the last fiscal year, and with no state budget set for the current year, the university doesn't yet know how much money it will get.
School officials said the use of the private emails to discuss hiring controversies and a plan to open a new medical school at the Urbana-Champaign campus violated university policy.
Wise cited "external issues" in announcing her resignation last week.
In addition to the email controversy, the Urbana-Champaign campus faces allegations and two lawsuits from former athletes in three sports that they had been poorly treated by coaches and staff, as well as a lawsuit and anger among some faculty over the decision to rescind a job once offered to a professor, Steven Salaita.
Salaita was offered a job to start teaching American Indian studies in the fall of 2014 and left his old position at Virginia Tech University only to be told by Wise not long before classes started that he wouldn't be hired after all. Salaita had written a long series of tweets in the summer of 2014 complaining about Israel. Some university donors complained to Wise that the messages were anti-Semitic.
