Top public pay may have to follow the bankers downwards
Published 04/02/2010 | 05:00
Salaries for chief executives of state-owned companies traditionally lagged behind those available for similar roles in the private sector. But the dampening down of salaries in the banking industry has had a ripple effect on executive remuneration throughout Irish business.
While incentivising senior management remains a key goal of most companies, wage deflation has paid a visit to most corporate boardrooms, with basic salaries cut back or bonuses either entirely waived or deferred.
This is the case in the semi-state sector too, but the Government appears to believe that not enough wage restraint has been displayed by those running leading state-owned enterprises.
Proposals are before Cabinet to review remuneration levels at companies such as ESB, Bord Gais, the Dublin Airport Authority and Bord Na Mona.
While ministers have yet to explicitly state that salaries at CEO level in the semi-state sector are out of control, a review body is to be established to see if pay levels are justified. There has also been some suggestions that pay in general at the semi-states needs trimming, but so far the unions have stoutly resisted any moves in that area.
The cap on bank salaries at €500,000 per annum has left basic pay at semi-state companies looking a little excessive, although many of the individuals could probably get multiples of their earnings outside the state sector -- at least they could a few years ago.
Nevertheless, the salaries involved are generous in the current environment of pay austerity. In terms of basic salary, the ESB chief executive Padraig McManus is the best paid CEO with a salary of €458,000. Add in a bonus, a pension contribution, other benefits and Mr McManus collects more than €654,000 per annum, according to the most recent annual report from his company.
The recent ceiling on bank salaries leaves whoever heads up the ESB in a far better comparative position on pay than that person would have been a few years ago. Nevertheless, ESB is a large organisation with 7,870 employees. If the Government orders semi-state salaries to be cut back, Mr McManus might be the obvious target.
His direct competitor in the energy arena, John Mullins of Bord Gais, was awarded a salary of €288,000 in 2008, plus a €73,000 pension contribution, leaving his total remuneration hovering around €361,000 per annum. Mr Mullins did not take a bonus in 2008 either.
The gap between Mr McManus's and Mr Mullins' pay is significant, but the Government can have no complaints with either salary.
As most annual reports of semi-state companies point out, the pay is set by government guidelines and if the Government wants reductions, it could always try to bring in a new set of guidelines or amend the existing ones.
RTE director general Cathal Goan is in a very difficult position on his pay. He doesn't lead an out-and-out commercial body, so the rewards for his post tend to be lessened. But, equally, he runs a large complex organisation and RTE needs to at least maintain some connection between the salary of the director general and those sanctioned for leading presenters. According to RTE data, Mr Goan is in receipt of a basic salary of €298,000.
This is far below the salary agreed with the chief executive of An Post, Donal Connell, which is set at €379,000. This is arguably generous when one considers that a large part of An Post's market is closed off to outside competition.
Declan Collier, chief executive of the Dublin Airport Authority, is paid a basic salary of €348,000, according to the company's annual filing.
Mr Collier came into the post from the private sector and he is engaged in a major cost-reduction programme. Whether his salary is justified or not, the man himself has refused to be cowed by a media campaign designed to guilt trip semi-state CEOs into lowering their salary entitlements. Last year, Mr Collier said his salary was purely a matter for the board of the Dublin Airport Authority.
The natural reaction to this kind of commentary is to ask the Government to step in and cut back CEO salaries in the semi-state sector. When this demand is made, the phrase, "this is taxpayer's money after all", is often used. But this is a common misconception. Virtually none of the state-owned companies receive any direct taxpayer support, so there is no direct impact on taxpayers from CEO pay in the semi-state sector.
However, there is of course some indirect impacts. Firstly, a CEO's pay can set dangerous relativities throughout a company. Secondly, excessive pay can make it harder for the CEO to force reductions in pay further down the company. And finally, excessive pay awards ultimately reduce the dividend income that should be flowing into state coffers.
A significant amount of the scrutiny of semi-state CEO pay is tied up with the prominence of the company. For example, traditionally most curiosity surrounded the pay of the ESB chief or the Aer Lingus chief, before that company was sold into private hands.
But pay for those leading the less prominent semi-states is also arguably generous in the current environment. Coillte, for instance, the forestry company, pays its chief executive David Gunning a basic salary of €297,000, while Bord Na Mona awards a wage of €247,000 to its chief Gabriel D'Arcy.
Of course, the main problem with arriving at the "correct" and "justified" salary level in this area is how do you measure success? Shareholder value is not truly measurable when your shares do not openly trade.
Many semi-states do not even pay a dividend to the Government and some are not even meant to be profit-making in strict terms, such as RTE.
Unfortunately, many would argue that a culture has existed for many years that pay has been linked to an ability to keep a company out of trouble and out of the red. Ambitions have often not stretched beyond this.
However, with salary levels being questioned across the economy, chief executives at semi-states will probably have to do more to justify their pay and conditions in the future.