Government rejects VHI pay package

The Government has rejected a proposal by the VHI board to offer a new chief executive a remuneration package significantly above the terms of the Gleeson pay guidelines. The VHI had requested Government approval to pay Mr Ray Bates a basic salary of £135,000, plus bonuses and expenses. Late yesterday the VHI issued a one sentence statement which said: "The VHI has been informed that the Government has decided not to ratify the remuneration package for the selected candidate for the position of chief executive."

The VHI has been without a permanent chief executive since the resignation of Mr Brian Duncan in May last year. The contract of acting chief executive, Mr Aidan Walsh, a partner at accountants Price Waterhouse, expires at the end of this month. Last night a VHI spokesman would not comment on what steps the board will now take to fill the position. The board is now expected to meet early next month to consider its next step, according to sources. The chief executive post had been offered to Mr Bates by the VHI chairman, Mr Derry Hussey, and this had been approved by the board last week.

The full extent of the proposed remuneration package had not been revealed to the VHI board. However, it is understood that he was offered a basic salary of £135,000, plus potentialy valuable bonuses, a company car and some other perks. This compares with a basic pay level of £70,000 under the Gleeson guidelines.

However, the Government has now told the VHI that it will not sanction the package, as it is in excess of the Gleeson pay guidelines. The VHI board will now have to consider its options, which could include offering Mr Bates the job on a consultancy basis, offering it to him on the Gleeson rates on the basis that this may be increased if the Buckley report is approved, or seeking another candidate. This is the second time in recent months that the Government has vetoed proposals from a semistate board to pay a chief executive in excess of the Gleeson guidelines. On the first occasion, it blocked a higher package for ESB chief executive, Mr Ken O'Hara, who later took the job on the old Gleeson pay level.

The Government has still to decide on whether to accept new pay guidelines put forward in a report by a committee chaired by Mr Michael Buckley, which was intended to replace the existing Gleeson guidelines. The Buckley report recommended that pay for the chief executives of commercial semi-state companies be set at a level similar to the private sector and be performance related. The issue is set to remain contentious, with several other posts due for renewal, including the chief executive position at Aer Rianta.

Sources said last night that the Government could not have approved the VHI package, having turned down the ESB request for a higher package for its chief executive. Giving approval for a higher package for the VHI would also have led to similar requests from other semi-state positions, before the Government had decided on its policy in relation to the entire Buckley report.