Heads of commercial state firms will be paid in line with comparable public sector executives

MAJOR reform of how chief executives of commercial state companies are paid and a new approach to how directors are appointed…

MAJOR reform of how chief executives of commercial state companies are paid and a new approach to how directors are appointed to their boards are among the recommendations in the report of the Review Body on Higher Remuneration in the Public Sector.

The recommendations, accepted in principle by the Government, mean substantial pay increases for many commercial state company chief executives, who would be paid in line with private-sector levels. In some cases chief executives are already on contracts which breach the old guidelines. However, much smaller increases - or in many cases no increases at all - are recommended for non-commercial state bodies.

Most interest will focus on recommendations for the commercial state companies. The report calls for greater clarity in how much such chief executives are paid and says they should be set demanding performance targets.

Current chief executives should only get pay increases if they accept revised contracts, the report says, which would include an annual contract revision and the possibility of dismissal if targets are missed.

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In the coming months the Government is to give existing chief executives the opportunity of opting for such arrangements and it is starting the process of adjusting state company structures along the lines recommended by the committee. The review body is a standing body whose chief function is to advise government on general levels of remuneration for higher public servants, Oireachtas members and the judiciary.

The current review body was reconstituted in March 1995, with Mr Michael Buckley of AIB Capital Markets as chairman. It also includes Mr Peter Malone, managing director of Jurys Hotels; Ms Vivienne Jupp, a partner in Andersen Consulting; Ms Helen O'Dowd, food consultant; Mr Cormac McHenry, a member of the Labour Court; and Mr Sean Walsh, also of the Labour Court.

The review body says each board should establish a remuneration sub-committee with the necessary skills to assess pay and performance.

Chief executives' remuneration has been contentious in several commercial state bodies and played a central role in the dismissal of the former Bord na Mona chief executive, Dr Eddie O'Connor, last year. Mr O'Connor's pay had breached Government guidelines.

The report calls on the Minister for Finance to appoint a firm of consultants which each state company could engage to evaluate its chief executive post. The consultants would also advise on private-sector rates for similar posts.

Although it does not specify what these salaries should be, the report says the maximum basic salary should not exceed the average of comparable private-sector rates. It also recommends that contracts include specific objectives demanding high performance.

Many commercial state companies have already circumvented Government guidelines on state pay by offering personal contracts to their chief executives. These organisations include Telecom, where the chief executive is paid more than £200,000 a year, and Aer Lingus.

The report recommends the introduction of one-year rolling contracts and says chief executives should not serve more than seven years. Boards should also have the flexibility to terminate contracts if chief executives fail to deliver, the report says.

The report also says the conditions of appointing chief executives should not include a right of re-entry into the same organisation or another public-sector organisation when the contract expires.

The review body found that many chief executives were paid performance bonuses which were close to the maximum rate of 20 per cent. "It is essential that performance pay should not be regarded as an entitlement or a supplement to basic pay," it says. "Boards should set challenging targets and the rates of pay should be proportionate to the level of success achieved in meeting these targets."

The review body also says a company car should not form part of a pay deal for the chief executive of a commercial state company, and the annual report should disclose all information surrounding the executive's package. At present, many do nol reveal the terms of their chief executives' pay deals.

However, it warns that this - the "most fundamental change" in pay arrangement since 1969 - cannot be considered in isolation. It says the role of the chairman or chairwoman needs to be strengthened and he or she consulted to a greater extent in advance of net appointments.

The report says appointment to commercial state bodies should be made solely on the basis of that experience, competence and expertise of the persons concerned and the system of selection and remuneration of director reviewed according. It also recommends a suitable senior civil servant should be appointed to the board.