Paddy Power said yesterday that it had begun the process of recruiting a new chief executive following the decision of its current chief, John O'Reilly, to step down within the next year.

The bookmaker said that Mr O'Reilly, who joined the fledgling company in 1988, was standing down "for entirely personal reasons". A spokesman said the 54-year-old Dubliner had decided to take early retirement.

Brokers said that while Paddy Power could go outside the company's ranks to find Mr O'Reilly's successor, the odds were that they would opt for an internal candidate with finance director Ross Ivers emerging as the favourite.

Mr O'Reilly, who is on a one-year rolling contract, will remain as chief executive until the end of 2005, at least, the company said.

Mr O'Reilly, who served as financial controller and company secretary before taking over as chief executive from Stewart Kenny in June 2002, is well-positioned to retire.

Last September, he raised more than €5 million following the exercise of 600,000 share options in the bookmaking chain.

Paddy Power's annual report, published yesterday, also showed that he was paid €883,000 last year, up 89 per cent on the previous year.

However, his pay fell by 9 per cent in 2003, reflecting the fact that his bonus was cut after Ireland's biggest bookie took a €4 million hit to its profits following a run of punter-friendly results at Cheltenham and Monty's Pass winning the Aintree Grand National.

Last year saw the company return to form as it posted a 58 per cent increase in pre-tax profits to €32 million.

As a result, Mr O'Reilly was paid an annual bonus of €356,000, nearly as much as his basic salary of €375,000. In addition, he received pension costs of €113,000 and benefits worth €39,000.

Meanwhile, Mr Ivers was paid €498,000 last year, including an annual bonus of €193,000. His total pay was up a third on the €373,000 he received in 2003.