Several members of the board of Telecom Eireann have expressed serious reservations over the deal to give employees almost 15 per cent of the company. Fears were also expressed that the size of the shareholding could depress the value of employee share option scheme when part of the State-owned company is floated.

The deal, which is being funded by employees and Telecom will cost £190 million. Employees are getting £100 million towards the share purchase price from Telecom, in exchange for making their own pension contributions and surrendering bonuses.

The monthly board meeting which was held earlier this week, heard criticism of the amount which Telecom is contributing to the deal. A number of board members felt the amount was very high for the concessions being made.

The reservations were expressed by some non-executive directors who said they were concerned about the impact the payment could have on the company's financial performance. The employees are raising £60 million towards the stake and will pay a further £30 million next year, if the value of the company has risen.

The board, which discussed the Employees Share Option Programme (ESOP) for more than an hour at the Tuesday night meeting, was considering the programme in detail for the first time. Surprise was expressed at several elements of the deal including a proviso that the worker director representing the employee trust (which will administer the shares) will be able to refer matters which he or she considers of major importance to the Trust. "It won't block Telecom's plans but it could certainly slow them down," one source said.

However, it is understood that Telecom chief executive Mr Alfie Kane and the chairman Mr Ron Bolger strongly defended the deal.