Staff at Irish Water will receive bonuses of up to 10 per cent of salary depending on the quality of their performance, the Dail's Public Accounts Committee has heard.
He said the decision to pay bonuses was done having notified the Department of Communications, Energy and Natural Resources and that approval was granted for Irish Water to follow Bord Gais' example.
Addressing the Public Accounts Committee, Mr Tierney said that all staff are entitled to receive bonuses, which will be paid out on the basis of high performance.
The committee heard that bonuses of up to 10 per cent of annual salary will be paid to staff, and that as of yet "no bonuses have been paid".
"Every employee has the opportunity to earn bonuses on the basis of high performance, but no one has been paid yet, given it is early days," Mr Tierney said.
"Irish Water was established as a subsidiary of Bord Gais and adopted its model, and there are very good reasons for adopting that model," he added.
The committee also heard that in Bord Gais, average bonus payments worth €7,000 have been paid out to its 300 staff.
Defending the spend on bonuses, Mr Tierney said the company has moved away from the practice of paying increments and that a pay freeze is in place until 2016.
PAC member Kieran O'Donnell said such a position was "contradictory" and appeared to go against stated Government policy.
The top official in Minister Phil Hogan's department has said "it was recognised that external service providers would be required" from the start in the setting up of Irish Water.
"We were aware right from the start that such spending was needed. We satisfied ourselves that when external providers were used that no experience existed within the department," Geraldine Tallon, Secretary General told the committee.
She said that an initial review of costs given to Mr Hogan showed that "most of the proposed of the establishment costs appear to be reasonable" and will deliver "value for money" to the consumer.
Ms Tallon, in addressing a special sitting of the Public Accounts Committee (PAC), said that initial costs of setting up Irish Water were financed by Bord Gais and subsequently financed by a loan from the National Pension Reserve Fund.
She said the department agreed the "classes of activity associated with establishment with Bord Gais and they were required to report on expenditure during 2013...this did not identify spend to date on external resources".
A report on the procurement of external consultants was provided to the department in March 2013.
Ms Tallon said there was "little flexibility regarding the timeline for delivery as the establishment of Irish Water by Jan 1 2014," which was a critical commitment under the terms of the EU/IMF Troika bailout programme.
She said a key priority for the department was that "existing resources within Bord Gais, the department and local authorities should be maximised to the greatest extent possible.
She said that a lot of work has been undertaken to ensure than any costs in the set up of Irish Water will be outweighed by the benefits to consumers over time.
In his address to the committee, John Tierney outlined the key governance structures at Irish Water.
Under performing staff at Irish Water will not have their pay docked, John Barry of Irish Water told the committee. Mr Ross asked can under performing people be sacked, Mr Barry said "no".
"There is no approved bonus scheme in the commercial semi state because the minister for public expenditure and reform has no role in it," a spokesman for the department of Public Expenditure and Reform told the committee, contradicting earlier comments from Mr Hogan.
He said it was a matter for Mr Howlin to adjudicate on the level of bonuses in conjunction with the company.
By Daniel McConnell, Political Correspondent