Incoming CE of Aer Lingus to receive significant pay rise

The next chief executive of Aer Lingus will be paid in excess of £200,000 (€253,950) - almost double the salary of its former head, Mr Garry Cullen. The Aer Lingus board meets next Thursday and will establish a sub-committee to begin the search to find a replacement.

A package of £200,000-plus would contravene existing Government guidelines on pay for semi-state chief executives. However, there is a growing recognition that a higher remuneration deal - including share options - is needed, if the right candidate is to be attracted to pilot the airline through a difficult flotation.

"There will be flexibility there to lure the right person," said a Government source. "A strong remuneration package will be offered." It is understood that this will involve a special contract which will not be limited by any existing or planned pay schemes for semi-state chiefs.

Mr Cullen, who resigned unexpectedly last week, as doubts over his ability to lead the flotation grew in certain quarters - most notably union circles - was on an annual package of around £112,000. New packages for chief executives of semi-state companies are currently under negotiation and will vary from one company to another. It is understood that Mr Cullen's salary was under negotiation, but he had not signed a new contract.

However, last night some analysts said that even a £200,000-£250,000 package would not lure an international aviation heavy hitter. "You'd be lucky to get a middle-ranking British Airways manager for that," said one source. "It will be an extremely tough flotation to get away and the company needs some serious restructuring."

Increasingly, share options are an important element of an attractive remuneration package. Such options are unlikely to be offered because the Public Enterprise Minister, Ms O'Rourke, under whose remit Aer Lingus comes, does not believe that company executives should be granted options prior to flotation. Her belief is that these monies come from the taxpayers' purse. Post-flotation such options could be offered.

A strong package will be vital if the airline is to attract the right candidates. Some analysts felt an insufficient package was on offer when Aer Lingus sought a replacement 18 months ago for Mr Gary McGann. Mr McGann left to join Jefferson Smurfit and was replaced by Mr Cullen. Mr McGann had been on a special contract worth more than £200,000. However, the current Government, in contrast to its predecessor, seems reluctant to enter into special contracts which break existing guidelines on pay. One notable exception to this is Mr Alfie Kane, Eircom chief executive, whose pay deal is also worth in excess of £300,000.

At present semi-state companies are negotiating new contracts with chief executives who choose to opt for a new system of remuneration. This system combines the recommendations of a firm of management consultants and a review carried out by AIB's head of Polish operations, Mr Michael Buckley. The new contracts will see considerable rises in chief executives' salaries, but they will be on rolling one-year contracts, with very specific performance related bonuses built-in.

The Aer Lingus flotation, which the Government hopes will raise £500 million-plus, will also entail the State airline raising monies itself, around £150-£200 million to fund further expansion.

Some sources continued to cast doubt on the flotation yesterday, saying that at only around £500 million "it will not register on big fund managers' radar screens". They stressed that fund managers want to be in dot coms, technology companies which are seeing massive annual stock value appreciation - 100 per cent or more in many cases - rather than in airlines.

The flag carriers who have floated - such as British Airways and Iberia - are not doing well, said one source. "Even those who are doing OK, are not seeing massive capital appreciation."

The source said that the institutions know that if they don't invest in tech companies now, their portfolio values will lag behind their competitors. When the bubble bursts, and the dot com values fall, then fund managers will use those falls as a benchmark, said a source.