Mr Devaney said that share option schemes help focus minds and that in their absence, something else will fill the gap.
"I personally believe that share options have a significant role to play in the way a manager looks at the business. I am surprised at the extent to which people have got behind this bandwagon - the idea that share options are a bad thing. It is dangerous territory," he said.
He was speaking as Eastern announced pre-tax profits up by 15 per cent to pounds 203.5m and said it would seek permission to buy back up to 14.9 per cent of its shares in addition to the 8 per cent bought so far.
His comments come amid growing speculation that ministers are seeking to distance themselves from the Government-backed Greenbury committee on executive pay, which is due to report next month.
According to one Cabinet source: "In a free society, people should be free to earn what people are willing to pay them. The Cabinet believes collectively that governments do not decide the pay of people in the private sector." He accused the Labour Party of promoting the politics of greed and "tearing away at achievement".
Mr Devaney said that Eastern Electricity would fully disclose executive pay in the annual report. He also said that Eastern was about to replace three-year rolling contracts with two-year agreements.
The company's underlying pre-tax profits last year rose by 18 per cent to pounds 265.6m after charges of pounds 62m, mainly related to the disposal of the retail arm. Adjusted earnings per share increased by 21 per cent to 75p and the dividend rose by 23 per cent to 28.3p.
About 300 jobs were cut in the core electricity business during the year and a further 500 are to go. Mr Devaney said: "We will keep chipping away at costs in the distribution operation." But he said that the real driver was expansion into power generation and gas.
Eastern's power generation business made a profit of pounds 13.3m during the year. The company said that its second wholly owned power station would be operating at Kings Lynn in late 1996 while Barking Power, in which it has a 13.5 per cent stake, would be on stream next month.
The gas supply business made a profit of pounds 2.8m on sales of pounds 67.3m. The sales this year are expected to be about pounds 200m, despite tough competition in the marketplace.
Mr Devaney launched a bitter attack on the regulator, Professor Stephen Littlechild, over his handling of the current review of electricity distribution prices. "We need to have a dialogue," he said. "The risk is that he is not talking to anybody and that he will come out with something silly." He said that the one meeting the company had had with the regulator was "one monologue each way rather than a discussion. That is not a meeting."
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