Government must reassess how it pays its top cats

THE controversy over remuneration policy at Bord na Mona this week highlights a dilemma which the Government is facing in its dealings with State companies. To attract top-class candidates to run these companies, remuneration packages which can at least approach those available in the private sector are needed. Yet pay scales are set by a Government review body at levels well below the private sector.

The circle has been squared in a number of ways. In cases such as Telecom Eireann and Aer Lingus, experienced candidates have been attracted through offering contracts which effectively drive a coach and horses through the terms set by the Review Body on Higher Remuneration under chairman Dermot Gleeson. And as was shown in Bord na Mona, executives can also be rewarded through means other than basic salary in a way which increases the value of their overall package.

Now the whole issue is under review again. Following the revelations about Bord na Mona, the Minister for Transport, Energy and Communications, Mr Lowry, has asked all the semi-states to report to him on the packages paid to their top executives. Meanwhile, behind the scenes, the Review Body on Higher Remuneration is again meeting, this time being chaired by Michael Buckley, a senior executive with AIB and formerly a senior civil servant. The body is expected to report before the end of the year.

At the moment the basic pay scales set down by the body under Mr Buckley's predecessor, Dermot Gleeson, range from as low as £40,330 (in 1994 terms) for the head of smaller companies such as NET, CERT and Bord Iascaigh Mhara to £81,750 for Aer Lingus. Annual increases over the past two years would now have increased these figures slightly.

In the case of commercial state companies, the basic pay levels can be adjusted up or down by 10 per cent, bonuses of up to 20 per cent of salary are payable and a company car is provided. For non-commercial agencies such as FAS and IDA Ireland, bonuses of up to 10 per cent are payable. In contrast, senior civil servants and the head of the Central Bank - the highest basic salary level on the list at almost £84,000 - cannot receive any bonus.

The actual level of remuneration paid, taking account of special contracts, pension payments and expenses, is more difficult to determine. The commercial state companies are not obliged to publish details of the remuneration of their senior executives. However, those constituted as public limited companies (plcs), generally publish figures for the total remuneration of the directors as well as the fees they are paid. These include the two state banks ICC and ACC, as well as Aer Lingus. An Post, CIE and Telecom Eireann also publish figures for the total remuneration of their directors.

However, as these companies usually have several directors who are members of the board, including worker directors the total figure does not give a clear indication of the chief executive's salary.

The increases granted in the last review to the higher earners were in some cases quite substantial, but still left wage levels generally behind private sector norms, given the size of the state companies. For example, the latest Irish Management Institute survey shows managing directors salaries in companies with over 500 employees averaging over £79,000. (The figure for companies employing over 1,000 was slightly lower at £73,300, presumably due to a smaller sample.)

However the top of the range according to the IMI survey is £110,000, which presumably would apply to managing directors of private enterprise on the scale of the big semi-states such as the ESB and Telecom Eireann. In addition, seven out of every 10 private sector firms operate bonus schemes, boosting chief executive salaries by 18 per cent on average, while almost a quarter operate share incentive schemes. Private sector managers would also generally enjoy a wide range of other perks.

Reports of remuneration packages in the private sector, and of contract arrangements in a few of the semi-states, are believed to be leading to many other semi-state chiefs seeking more in the Buckley review process. Meeting as a group in the semi-state chief executive's consultative group, they are expected to make a submission to the Buckley Review Group seeking better deal across the semi-state sector.

The review group, and the Government, have a number of issues to tackle. One is the immediate problem for the responsible Ministers of the mechanisms used to control executive expenses and incentives in the semi-state sector. Transparent guidelines are obviously needed in these areas for the state companies in the wake of the Bord Na Mona controversy.

More generally, a clear basis of remuneration across the companies owned by the Government is also required. There is a strong argument that many top State executives should be paid more, although assessing just how much is not easy.

For example, not all operate in businesses open to the same level of competition and performance pressures as the private sector. This makes appropriate pay levels difficult to develop and also makes it hard to develop benchmarks for performance related bonuses.

Ministers and civil servants who will rule on whatever the Buckley committee recommends may argue that the chief executives of state companies cannot have it both ways and &expect rates of pay that are the norm for executives in companies exposed to the full force of competition, to run companies that operate as monopolies.

Semi-state bosses may also consider that they have greater job security than their higher-paid colleagues on fixed-term contracts.

The challenge for the Government and the Buckley committee is to come up with a system which treats all semi-state chiefs on a similar basis, despite the diverse nature of both the markets and the businesses in which they operate.