The ESB board backed down last night, faced with a direct instruction from the Minister for Public Enterprise, Ms O'Rourke, to reduce the proposed pay packet of its new head. In a terse statement, the company said it had confirmed Mr Ken O'Hara as chief executive and that his contract "does not contravene current Government pay guidelines for the semi-state sector". Earlier, sources close to the board said the Government had been aware from the outset that it was negotiating a "competitive" remuneration package with Mr O'Hara, in line with the Buckley report, which called for significant increases in the remuneration of top level public servants.

It is understood that the board argued its case forcefully to Government, but was met with equal vigour from the Minister.

The board, which appointed Mr O'Hara (58), a long-standing ESB employee, in June, had concluded its negotiations with him and he was due to take over from Mr Joe Moran as chief executive at the beginning of September.

But the new Government announced in July that it had deferred implementing the Buckley Report's recommendations for the present. Ms O'Rourke told the ESB board that Mr O'Hara's salary package must, instead, be in line with the older, Gleeson report on public sector executive pay.

In effect, this would reduce the pay package offered to Mr O'Hara's from more than £150,000 a year to just above £100,000.

There was speculation right up to last night's meeting that Mr O'Hara would reject the new offer, which must itself be rubber-stamped by the Minister. Sources now believe the Government may approve the Buckley recommendations as part of the 1998 Budget to be announced on December 3rd.

In a statement last night, Mr O'Hara said he looked forward to leading the ESB into the future.

"I am now determined to move forward in partnership with the board, staff and management in the new competitive environment," he added. "I have made the decision in what I believe to be the best interests of ESB, both now and as the company prepares to face the challenges of the future."

Ms O'Rourke said she welcomed the appointment of Mr O'Hara, adding that she had full confidence that he would guide the ESB through the challenges that faced it.

"I have had a series of very useful meetings with the chairman of the ESB, Mr Billy McCann, over the past number of weeks which culminated in a meeting this morning with the chairman and chief executive-designate which proved helpful and productive," the Minister added.

Mr McCann said last night he was "very pleased" with Mr O'Hara's decision to accept the job and that the board had great confidence in his ability.

"I would like to pay tribute to the new chief executive for the way he has dealt with the difficult situation over the past few weeks," Mr McCann added.

Mr O'Hara joined the ESB in 1961 and has served in a number of positions since. From Dublin, he is married with four children and is a fellow of the Institute of Engineers in Ireland.