Pay levels for chief executives of State bodies have long been contentious. State bodies are important national assets and they supply essential utilities; hence the public has a keen proprietorial interest. The public expects chief executives of State bodies to be paid sufficiently well to develop these key assets and to be motivated by a commitment to public service. The chief executive, correspondingly, occupies a world between the commercial and the political and manages the unique challenges this entails.

The Gleeson report of 1987 noted a disparity between the public and private sectors in the remuneration of top posts. However, Gleeson was aware of the public expenditure constraints in attempting to close this gap. Of course, these restraints were particularly severe in 1987.

Gleeson set remuneration guidelines for chief executives of State bodies. There have been some well-publicised breaches of the guidelines but these are exceptions. Last year, a report commissioned by the Government into the pay of chief executives of State bodies found little abuse of the pay guidelines. However, the gap between public and private sector remuneration persisted.

In 1993, for example, there were reports that the advertised salary for the chief executive of a newly formed industrial development agency was insufficient to attract significant private sector interest.

The Buckley report published earlier this year proposed a more flexible approach to remuneration. It would be a matter between the chief executive and the board of each State body and would reflect competitive pressures and performance.

In the ESB's case, the movement to a Buckley-style contract would have raised the remuneration package of the in coming chief executive from £105,000 to approximately £200,000. In recent days, we have read that the ESB has not proceeded with the appointment of its new chief executive under the new remuneration terms and is in discussion with the Government about its room, if any, for manoeuvre.

In essence, the Buckley proposals are a response to changes in the public service and particularly in the State sector. In broad terms, change in the public sector has meant stronger emphasis on devolved responsibility and on accountability, a movement towards performance measurement and value for money audits, more openness to customers and greater reliance on competition and contracting-out.

The State bodies sector is heavily engaged in the process of change. In recent years, competition especially due to initiatives from the EU has been a dominant theme. The increased competition in telecommunications and air transport has been widely discussed. By 2000, approximately one quarter of the Irish electricity generation market will be opened to competition.

In preparing for these challenges, the State bodies are reorganising. In 1996, the ESB completed the largest restructuring deal in the history of the State involving staff reductions of some 2,000 and operational savings of about £80 million.

The ESB's 1996 annual re port contains some impressive results: a profit of £132 million, a £170 million capital expansion programme funded from internal sources, debt reduction of £110 million and a fall in the debt-equity ratio from 58 to 50 per cent.

This is much in keeping with official thinking on the future of State bodies. The NESC in 1996 called for a re view of State bodies to identify the nature of the market and the scope for increased competition. The Government task force on State bodies, which reported in 1995, opposed rules and procedures for State bodies which would detract from the "zest of enterprise".

ON the face of it then, the ESB appears to be performing well and to be engaged in a significant change in its corporate culture. Should it not therefore be free to remunerate its chief executive along the lines recommended by Buckley?

My view is that the remuneration should contain a significant element of performance-related pay. Performance should be judged against targets which are to the greatest possible extent identifiable and measurable. In particular, performance should be independent of the economic cycle.

In other words, improvements or disimprovement in profits which are simply due to the broad performance of the economy should not be counted.

In addition, remuneration packages should be transparent so that the public is aware of the amount and composition of payments. Moreover, State bodies should be held accountable for decisions on pay.

It seems sensible that the level of pay be responsive to indications such as profit increases, number of staff and market size and share. Similarly, where public-sector remuneration is responsive to that in the private sector, it seems right to insist that like be compared with like.

We would therefore need to ask whether the same pressures, particularly competitive pressures, exist in both cases.

In public-service organisations, it is important to strike a reasonable balance between public accountability, affordability and commercial freedom.

Reports differ on the reasons for the delay in moving in the direction recommended by Buckley; some say it is for reasons of cost, particularly knock-on costs, others say it is because the Buckley recommendations are still being considered.

Whatever the reason, it seems that in the long-term, the changes both in the external competitive environment and within the public sector will move State bodies in the direction envisaged by Buckley.

Dr Michael Mulreany is senior lecturer in economics at the Institute of Public Administration. The views expressed in this article are personal.