€144k for advice as Paschal gets set to lift €500k bank pay cap
PASCHAL Donohoe is preparing to look at letting our banks’ senior executives break the €500,000 cap on their wages – and he is paying a consultancy company €144,000 to advise him on it.
The half-a-million-euro cap, that doesn’t include pension contributions, was brought in during the financial crisis when the taxpayer was forced to pay as much as €64billion to bail out the banks.
And the latest move comes after Ireland’s banks were sharply criticised in a Central Bank report which said they have ‘a distance to travel’ to become more customer focused.
That report, released on June 24, focused on executive leadership teams and the culture of Bank of Ireland, AIB, Permanent TSB, KBC Ireland and Ulster Bank. It said executives operate in a ‘firefighting mode’, and are struggling to transition from the mindset of the banking crisis. It also said banks may underestimate the work they need to do to change for their customers’ benefit.
Finance Minister Mr Donohoe signalled plans to review the pay cap as long ago as April, claiming this was because of competition for staff due to Brexit. In June his department proposed a ‘minicompetition’ among consultancy firms that already provide advice for the task, but it was since decided that it should go to full tender.
The department has now sought tenders for that contract and is poised to pay more than €144,000 plus VAT to the successful firm.
The closing date for tenders is September 7, and the review is scheduled to conclude within three months, with the process expected to pave the way for the return of bank bonuses a decade after the financial crash.
‘During the financial crisis, the State provided €64billion in financial support in various forms to the banking system,’ reads the tender document. ‘In return, banks supported by the State agreed to a range of measures including restrictions in relation to remuneraees tion. As well as the muchpublicised €500,000 total compensation limit (excl. pension) and the prohibition of all bonuses (cash and shares), there are also a range of other restrictions in the letter that limit the banks’ freedom of action without the minister’s formal consent.’
The documents note that the pay cap applies to all staff at AIB, Bank of Ireland and Permanent TSB – regardless of the country in which they are based.
This has affected the banks’ ability to use variable pay as a way of retaining key employ- in the US, UK and Europe – even in business lines ‘where this would be the norm in those markets’, it states.
Bank of Ireland CEO Francesca McDonagh said in June that remuneration restrictions had curbed her ability to make senior appointments.
AIB said last year that there were ‘elevated risks’ associated with the pay-cap policy, especially as local banks were facing growing competition for talent from firms.
The minister signalled his intentions in April when he pledged to use the State’s 71% stake in AIB to block plans to reintroduce executive share bonuses there next year.
‘I’m very clear that any changes in relation to compensation for the banking sector will have to be led by the Government,’ said Mr Donohoe. ‘This is a sector that has received extraordinary support from the Irish taxpayer.’
The Financial Services Union said that it will be ‘strongly making the case that any review has to look at pay of all banking staff, especially those on low to middle incomes or on short-term contracts – not the well heeled at the very top’.
‘Still a distance to travel’