Coalition urged not to ban bonus schemes

THE DEPARTMENT of Transport has urged the Government not to ban performance-related bonus schemes for top managers in commercial State companies but rather to introduce tighter rules on how they operate.

Minister for Public Expenditure and Reform Brendan Howlin announced last summer that he would review the system of performance-related schemes for chief executives of commercial State companies. A Department of Public Expenditure spokeswoman said yesterday proposals would go to Cabinet within weeks.

As part of the process departments were asked for their views on whether performance-related schemes had produced tangible benefits and on the implications of any decision to withdraw them.

In its submission the Department of Transport, Tourism and Sport said it favoured “the retention but tightening of performance-related pay schemes, particularly for a reduced level of award and subject to the achievement of highly challenging, measurable and published targets”.

It said given the substantially reduced salary levels the Government had set for new chief executives, the termination or modification of performance-related pay schemes would result in some receiving lower levels of remuneration than other senior managers.

“For example, under the existing Hay rates [the level of remuneration recommended by a consultancy firm commissioned by the Government several years ago] a chief executive in a medium-sized port company had the potential to earn €122,000 basic salary plus up to 35 per cent performance award, giving a potential €164,000. If the performance- related pay schemes are terminated, a new chief executive in such a port company would receive a salary of €81,577. It is extremely likely that other senior managers in such companies would be on a higher level of remuneration.”

The department said if it was decided to retain performance-related schemes, the criteria, the performance measurement and the level of awards should be published. “To achieve this, it may be that the desirable objective of directly linking chief executive performance criteria to performance results may have to be sacrificed somewhat for the alternative of setting a small number (five-10) of highly challenging targets.

“The targets should be specific, objectively measurable and achievable using measures such as (to take examples from our own sectors) turnover, passenger or load numbers relative to GDP growth or by benchmarking against other ports/airports . . .”

The department said it would support provisions being placed in a chief executive’s contract to allow the Minister to suspend, with due notice, the operation of the scheme from a future date without compensation.