The Government breached the pay cap for the chief executive of the VHI and signed off on a €137,500 severance payment when it renewed his contract.

John O'Dwyer's basic pay rose from €238,727 to €250,000 last year when he was given a new three-year contract.

His enhanced package included a basic salary of €250,000, a car allowance of €25,000, a severance payment of €137,500 to be paid at the end of the contract and an employer pension contribution worth 25pc of his wages.

It was approved by Public Expenditure and Reform Minister Paschal Donohoe in June last year.

The Government previously came under fire when it emerged it breached the salary limit for the incoming health insurance chief when he was appointed five years ago.

He went directly on the upper limit for the role of €238,727 - nearly €50,000 higher than the starting rate.

In a submission to the minister on Mr O'Dwyer's reappointment, a Department of Public Expenditure and Reform official admitted the new salary "is outside the current recommended range for the CEO of the VHI", which is from €191,014 to €238,727.

He said that awarding a contract of €250,000 would "distort the relative weighting of salaries" in the Government decision that set out minimum and maximum pay limits for commercial semi-State bosses.

Department official Christopher Ryan also noted it was proposed to pay a six-month gratuity payment of €137,500 on completion of the contract and a car allowance of €25,000 - both of which are "outside standard practice for the remuneration of chief executives of commercial State companies".

However, he said that €250,000 is the recommended overall remuneration ceiling for CEOs of commercial State companies. He said exceptions were allowed. The department noted that performance-related payments were banned by the government in 2013.

When asked if the severance payment was really the proposed bonus in another guise, a spokesperson said it was agreed "in order to retain a top performing CEO".

Irish Independent