Irish Water employees are to receive backdated incremental pay rises of up to 3% under a recommendation from the Labour Relations Commission issued today.
It is hoped that the proposal will end the row over a new performance-based pay structure which critics had described as a bonus culture.
The LRC criticised Irish Water for abandoning the performance-based structure amid the bonus controversy.
Irish Water parent company Ervia has confirmed that it will accept the compromise pay proposals, and the Group of Unions is to recommend acceptance in a ballot.
In 2013, a new pay structure was implemented for Irish Water and Bord Gáis Éireann (now known as Ervia) aimed at securing savings of €34 million over five years across the group.
Automatic incremental pay rises were replaced by performance-related awards, which put elements of a worker's remuneration at risk and subject to performance. There was also to be a pay freeze until 2016.
However, as controversy over Irish Water mounted, critics described the new system as a bonus culture.
The company then refused to pay the performance-related awards for 2013 and 2014, and also refused to reinstate increments.
The unions took the case to the LRC which has issued its recommendation today.
LRC Deputy Director of Conciliation Services Anna Perry strongly criticised the company for walking away from the 2013 agreement, saying: "It is regrettable that the company chose to unilaterally resile from the agreement that had been agreed in 2012 and implemented in 2013.
“Particularly given its ongoing position that the pay model introduced in 2013 is the correct one for the company and the fact that the recently concluded independent review of the model confirms its ongoing appropriateness."
Ms Perry said she has made the current proposal "given that employees in parts of the company have been denied elements of their legitimate pay aspirations over an extended period".
She said the pay model introduced in Ervia in 2013 is to be implemented in full immediately across the Ervia group, though implementation in Irish Water will be delayed until 2017.
Until then Irish Water employees will revert to an interim increment-based model covering the period from January 2014 to the end of 2016.
The non-pensionable increments will range from 1.5% for lower paid grades, to 3% for all other grades.
The structure will ensure that the lowest paid grades will get almost all they were due under the performance-related system, while higher grades will get a proportion.
From 1 January 2017, the performance-related system will be reinstated in Irish Water, and the increments will be withdrawn.
Ms Perry also said that arrears due under the agreement should be paid before the end of this year.
SIPTU Official Adrian Kane described the proposal as fair and balanced.
He said union members had been caught in the crossfire of a political storm resulting in money being taken from them in a way that should not have arisen.
He said the proposal would go a long way towards reversing that situation.
Mr Kane said he is recommending that his members accept the LRC proposals, but a more transparent incremental pay structure would have been preferred.
Ervia described the LRC's proposal as a "compromise" and said it accepts it.
Speaking on RTÉ's News at One, Ervia's Head of Employee Relations Paul Dunne said the company took the difficult decision in 2014 not to pay the performance-related awards under its pay system.
He said it was a very difficult time for the company, there was a lot of controversy around "what was in our view misconceived as a bonus culture" and "there was a lot of vilification of our staff, which was very unjustified."
He said the company took the view at the time to take a step back from it but Ervia always believed in the pay model and always signalled its intention to get back to the model.
Mr Dunne said Ervia welcomes the fact that the independent report confirms it is the appropriate model for the company and more importantly to getting back to the pay model in full with "its robust performance measures in 2017".
The Tánaiste has rejected suggestions that the ruling is embarrassing for the Government.
Joan Burton said the LRC was an independent and well recognised body.
She said this structure of payment would save Ervia €34m over a number of years.
Ms Burton said in relation to Irish Water the payments were performance-related pay and would start sometime after 2017.
She said she welcomed the LRC report and that it was important that pay would be linked to performance.
The Tánaiste noted that unions had welcomed it.
Ms Burton was speaking at the launch of a new Crosscare Food Bank Distribution centre in Glasnevin in Dublin.
A group of protesters gathered outside one of the main entrances to the facility and there were a number of gardaí supervising access to the facility.
There was a large garda presence in the area, and gardaí prevented demonstrators from getting close to the entrance to the facility at the Dublin Industrial Estate.
Minor scuffles broke out as some protesters attempted to go through barriers which had been erected, and gardaí attempted to maintain the barrier.
The Tánaiste did not pass the protesters as she went into the facility as she was brought in and left via a side entrance.
As Ms Burton approached her car on her way out one or two people shouted protest chants at her.
First water grant conservation grant payments made
Meanwhile, the first water conservation grant payments have been made to 156,249 householders.
The total value of water conservation grant payments made today is €15,624,900.
Those who register with Irish Water are eligible for the grant. There have been 1.3 million registrations with the utility.
Householders must then apply to the Department of Social Protection for the grant.
