Rules on pay in semi-state area still unresolved

The delay by successive Governments in sorting out the pay regime of semi-state chief executives has led to a number of fine messes in recent months. The ESB board was forced to back down on a plan to pay its new chief executive a rate above the level set down in the guidelines.

And then the VHI board wanted to recruit National Lottery managing director Mr Ray Bates, but were not allowed to offer him a contract paying above the guideline levels as a way of attracting him to take the job. Now, with the situation about the pay of commercial semi-state bosses still unresolved, comes the requirement to find a new chief executive for Aer Lingus.

Prospective candidates should look a little suspiciously at any promise contained in the recruitment advertisement that it will carry an "attractive remuneration package". The fact of the matter is that no-one is yet clear what the job is going to pay.

The outgoing chief executive, Mr Gary McGann, was paid on a special contract which allowed his remuneration to be significantly above the pay guidelines for the semi-state. But even then, he will no doubt get considerably more in his new job as Smurfit's chief financial officer and, crucially, can also hope to benefit substantially for its executive share option scheme.

No doubt the financial incentive was one reason for his departure. But he was also surely fed up with the way political considerations have intervened in the running of Aer Lingus. It was oddly appropriate that his resignation was announced on the very day that TEAM Aer Lingus staff were voting on whether to accept a £60 million package to buy out letters of comfort from the parent group, which political considerations had dictated they be given in the first place when TEAM was established.

The TEAM millstone has meant that Mr McGann and his management team have been unable to advance plans for a strategic alliance with a major airline.

The manner of his departure was also dictated by political considerations. The Cabinet was briefed, an announcement was rushed out well ahead of the intended date because the news was starting to leak, and a plan for Mr McGann to stay on for a period was shot down once the Minister, Ms Mary O`Rourke, stepped in to suggest that he should go immediately.

Why the precise terms of his departure were not sorted out in advance is something of a mystery. Perhaps it was the unions' objections to Mr McGann staying on which led the Minister to insist on such a rapid exit.

Now chairman Mr Bernie Cahill is stepping in as executive chairman until a new chief executive is found. And the hunt will be hindered by a lack of clarity of the pay package on offer. Will the Government be prepared to do a U-turn on its stand with the ESB and VHI and allow a contract arrangement? Will the job offer £105,000 - the maximum now available under the existing guidelines, including a number of bonuses intended to reward performance? Or will the new guideline levels drawn up by Hay Consultants following the Buckley report on state pay be completed before the new executive is in place?

The Buckley reported recommended that commercial semi-state boards be allowed to decide chief executive pay levels using private sector norms. But unfortunately the Government baulked at giving this extent of control to state boards, opting instead to ask the consultants to advise on pay scales for the different companies. It will still be some months before this work is completed.

One thing for sure is that the chief executive of Aer Lingus should be paid more that £105,000. What is required is a considerably larger basic package and then a deal which offers the incumbent the potential for substantial bonuses, but only if challenging targets set by the board are met.

Surely it would be possible for the Government to ask its consultants to give an urgent view on the appropriate levels for the top job in Aer Lingus, ahead of its full report? The Aer Lingus board under Mr Cahill could then be charged with developing a bonus structure and finding a candidate.

The only alternative is for the Government to give Aer Lingus the go-ahead to draw up another contract similar to that given to Mr McGann and also to the head of Telecom Eireann, Mr Alfie Kane.

And whatever the solution at Aer Lingus, the Government needs to get a new structure into place for the commercial semistates offering private sector type rewards as soon as possible. Otherwise the best candidates will simply not be interested.