Return of the banker bonus
Review looks at relaxing salary caps and super tax at the bailed-out lenders
FINANCE Minister Paschal Donohoe has opened the door to a return of bankers’ bonuses for the first time since the crash.
A new review will look at allowing them at lenders who were bailed out by taxpayers during the economic crisis.
Mr Donohoe has said that he will block the payouts sought by the board of bailed-out lender AIB at a shareholder vote next week.
But in the longer term, the review will look at the vexed question of bonuses and banks who received a bailout from the taxpayer.
Bonuses were effectively banned and top pay was capped at these banks almost a decade ago, as a condition of the €64bn rescue of the financial system. There is also an 89pc super tax in place which means that even if bonuses were paid, they’d be largely clawed back by the Exchequer.
The rules apply at AIB, Bank of Ireland and Permanent TSB – but not banks where the State never took a stake. The planned review has been ordered as management and boards at AIB and Bank of Ireland have been pushing hard for looser pay rules.
The banking executives say this is needed in order to attract and retain senior bankers as the economic recovery kicks in. Bonuses are on the agenda for annual general meetings of both lenders’ shareholders in the coming days.
FINANCE Minister Paschal Donohoe has opened the door to a return of bankers’ bonuses, with a review to look at allowing them at bailed-out lenders for the first time since the crash.
Mr Donohoe has said he will block the payouts sought by the board of bailed-out lender AIB at a shareholder vote next week.
But in the longer term, the review will look at the vexed question of bonuses and banks who received a bailout from the taxpayer.
Bonuses were effectively banned and top pay was capped at these banks almost a decade ago, as a condition of the €64bn rescue of the financial system.
There’s also an 89pc super tax in place, which means that even if bonuses were paid, they’d be largely clawed back by the Exchequer.
The rules apply at AIB, Bank of Ireland and Permanent TSB – but not banks where the State never took a stake.
All of those elements will have to be examined in the planned review, which has been ordered as management and boards at AIB and Bank of Ireland have been pushing hard for looser pay rules.
The banking executives say this is needed in order to attract and retain senior bankers, as economic recovery gives opportunities for well-paid jobs outside the main lenders.
Bonuses are on the agenda for annual general meetings of both lenders’ shareholders in the coming days.
Bank of Ireland, which holds its annual general meeting of shareholders in Dublin today, has said it plans to canvass investors about a return to executive bonuses that would be paid in 2019.
The State, with a 14pc stake, is the biggest single shareholder in the bank. Yesterday, Mr Donohoe said he would abstain on Bank of Ireland’s vote, which would give the board clearance to discuss the bonus issue. With the Government abstaining, the vote is likely to be carried.
However, the Finance Minister said he would use his 71pc majority stake at AIB to vote against that bank’s more detailed bonus proposal at an AGM vote on Wednesday. That kills any prospect of the vote being carried.
Last month, AIB’s board unveiled a plan to offer a deferred annual share scheme to senior executives, rather than pay cash bonuses. Under the scheme, bankers could be awarded as much as 100pc of their basic pay in shares.
That means AIB CEO Bernard Byrne’s total compensation could rise to €1m, even without removing the €500,000 salary cap he’s subject to.
However, mindful of the likely public backlash, the bank’s scheme would see the shares vested over three to five years, and final payments made depending on taxpayers recovering the cost of rescuing the bank. That wasn’t enough to win political support from the minister, however.
“I recognise the chairman and board’s right to put this resolution to all the shareholders of AIB, given their concerns about management retention and incentivisation in what is an increasingly competitive employment market,” Mr Donohoe said yesterday. “However, I cannot vote in favour.”
AIB welcomed the review, but warned its ability to retain and attract top staff was part dependent on the ability to compete with the remuneration practices of other employers.
The Financial Services Union gave a more guarded welcome to the review announcement.
“We wrote to the minister when the idea of a share bonus scheme for senior AIB executives was first floated at the beginning of March. We outlined, in no uncertain terms, our objection to this proposal, saying it was counterproductive as regards fairness, social solidarity and the need to reform the culture of banking,” it said.