There should be "a fundamentally different approach" to determining the pay of chief executives of commercial state companies, the Buckley report told the Government. The report of the Review Body on Higher Remuneration in the Public Sector, published in March, set out a framework of principles, criteria and procedures through which the boards of these companies could determine the pay of their chief executives.
Under these guidelines the board of the ESB offered the incoming chief executive, Mr Ken O'Hara, a package understood to be about £200,000 when pay, performance-related bonus and other elements are taken into account. This compared with the limit of £105,000 set under the Gleeson guidelines. However, the Government says it has yet to consider the Buckley report's recommendations and will not allow the ESB to offer the higher amount to Mr O'Hara. Determining an appropriate level of salary for an ESB chief executive is difficult. But some attempt can be made by looking at salaries in the private sector. The chief executive of Northern Ireland Electricity, the private sector electricity distribution company with an annual turnover of £561 million sterling, has an annual remuneration package of £165,000 sterling.
Northern Ireland Electricity is a smaller company than ESB and is not engaged in electricity generation. At £1.95 billion, ESB's annual turnover is almost four times that of NIE.
Last year's Irish Management Institute salary survey showed remuneration levels of £142,000 in the upper levels for chief executives of companies with turnover of over £150 million. In companies employing over 1,000 people, chief executives in the upper levels received remuneration packages of £150,000. ESB employs 10,000 people.
One recruitment consultant suggested yesterday that a package of £105,000 or even £150,000 seemed "light" for the chief executive of an organisation of the size and complexity of the ESB. "Within Irish corporate life, subject to the Buckley comment on the differences between public and private sector companies, the ESB is a very large and very complex organisation operating in an increasingly competitive environment," he said.
The review body under Mr Michael Buckley, an executive director of AIB Group, did not set out revised rates of pay for chief executives of the 21 commercial state organisations concerned. Stressing the changing environment in which the companies operate, the report concluded that the primary responsibility for determining the remuneration of these chief executives should rest with the boards of the companies and not with a review body. The new arrangements should be applied as soon as possible, it said.
The board of each company should establish a remuneration sub-committee with the skills required to assess pay and performance, the report recommended. This sub-committee should consist of at least three non-executive members of the main board, should be chaired by the company chairman, and should include a civil servant director.
The sub-committee should examine the chief executive's salary annually and the board should send its report to the Government, providing full details of the package.
Apart from performance related payments, the provision of company car in appropriate cases and suitable superannuation provisions, non-salary elements should not form part of the chief executives remuneration package. The remuneration sub-committee should access reliable market information on market rates for comparable jobs, using consultants where appropriate.
The report did not specify salary levels but said the maximum salary should not exceed the average of the comparable private sector rates. The contracts of chief executives should include exacting performance targets.
Current chief executives should only get pay increases if they accepted revised contracts which would include an annual contract revision and the possibility of dismissal if targets are missed. The ESB was among the commercial state companies to be covered by the new arrangements set out in the Buckley report.
The remuneration of chief executives has been contentious in several commercial state bodies and the issue played a central role in the dismissal of a former Bord na Mona chief executive, Dr Eddie O'Connor, last year. But a number of state companies have already circumvented Government guidelines on pay by offering personal contracts to their chief executives. These companies include Telecom, where the chief executive's annual package is over £200,000 a year, Aer Lingus and ICC Bank. In the private sector, the remuneration of chief executives varies widely. Factors which influence remuneration levels include turnover and the number of employees and capital employed.
