Business

State companies want more freedom over pay rates for senior executives, study finds

New committee to examine remuneration for top management

Senior executive pay: A host of commercial State companies want greater freedom and flexibility in setting pay rates for their most senior executives. Photograph: iStock

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Martin Wall
Tue Mar 19 2024 - 06:00

In the months ahead a new body announced earlier in March by the Minister for Public Expenditure Paschal Donohoe will prioritise examining pay for chief executives in commercial state companies.

The Government’s decision to set up the new Senior Post Remuneration Committee followed the recommendation of an independent panel that reported last year.

The Independent Review Panel was established by then minister for finance Paschal Donohoe in March 2022 and was tasked with examining the existing process for recruiting top management in the public sector and the mechanisms for determining pay and conditions for senior posts.

The group was also asked to look at arrangements for secretaries general in the Civil Service when they reached the end of their term in office.

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The panel, which reported last summer, was chaired by Donal de Buitléir, former chairman of the Low Pay Commission

The papers of this independent group, published by the Department of Public Expenditure, show that a host of commercial State companies want greater freedom and flexibility in setting pay rates for their most senior executives and believe that current arrangements are too restrictive.

Several want to be permitted to reintroduce bonus or performance payments for their chief executives.

In 2011 following the economic crash, the then government introduced a pay ceiling of €250,000 for the pay of most chief executives in commercial State firms. Performance bonuses were banned.

Later the New Economy and Recovery Authority, which provides financial advice to ministers on State companies, was given a role in suggesting top-level remuneration rates.

The submissions from some State firms — which mainly were drawn up in the summer of 2022 — show they wanted greater autonomy over pay, including offering incentive bonuses or performance-related pay. Some contend the fixed terms of top posts are too rigid.

The ESB told the independent panel in its submission that to attract and retain the best talent, the company must have “competitive and market-facing remuneration for everyone in the organisation including the chief executive”.

It suggested that the salary ranges that were in place before the crash in 2008 should be reinstated; that there should be an external review of the commercial State sector every three or five years which would place companies in a particular band and that internally the chairman and the board would have the flexibility to set a competitive remuneration package for the chief executive.

Bord na Móna said it wanted a return to a market-based pay model for chief executives in commercial State companies.

“The current model for reviewing pay of a chief executive does not provide a clear framework within which individual boards can operate. The model does not offer clarity on how often reviews may be carried out, nor does it offer predictability or transparency for the CEO [chief executives] as to when reviews may occur.”

Airport operator DAA said an independent review should be established by the Department of Public Expenditure to carry out an annual benchmark of chief executive salary rates which would take account of revenue, employee numbers, diversity and complexity of the company as well as “geographic breadth” in determining annual revisions of pay rates.

It suggested that any such review should have to engage with the remuneration committees in commercial state companies. DAA also maintained that rules requiring chief executives to be appointed on fixed-term contracts could have “unintended impacts” including requirements for termination payments if someone was found to be unsuitable. The company urged that unless there were special circumstances, a chief executive should be retained on a rolling service contract with normal termination provisions.

Health insurer VHI said in its submission that it was experiencing “significant risk” in recruiting and retaining staff based on State remuneration restrictions when benchmarked against industry equivalents.

“Remuneration restrictions mean that we are competing for the same talent that others are competing for without the same restrictions. It is vital for the long-term sustainability of VHI and to allow us to execute our business strategy [so] that we are able to attract and retain the people we need to run and develop the business.”

An Post proposed eliminating the chief executive pay cap or substantially increasing the approved rate as well as allowing its remuneration committee to determine a target bonus, provide for cost-of-living increases and extend the term of office of the chief executive by up to a year.

Forestry company Coillte recommended that an independent group should carry out an external market-benchmarked job-sizing exercise every four years which would identify an overall grading and relevant chief executive pay range.

Bus Éireann called for an end to the current system on which its chief executive is appointed to a single-point scale for a seven-year contract. It urged that an incremental scale be put in place, that the terms of any national wage agreements to applied and rules on tenure be aligned with those elsewhere in the public sector which would allow for a chief executive to be appointed for a five-year term which could be extended for a further five.

The overall CIÉ transport group maintained that the “accepted practice of CEOs having to vacate the role after seven years needs to be revisited”. It said often it took a good chief executive two years to get to grips with a complex organisation.

The Shannon Group said that increasingly salary rates in commercial state bodies were becoming less competitive compared with the private sector and current rates were a disincentive “to attracting and retaining the right talent from the private sector to consider positions as chief executives”.

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