Friday 9 December 2016

'Neglectful' banks still paying out big bonuses and golden handshakes

Central Bank report finds that only one institution has taken 'serious measures' to reform pay and bonus structures that contributed to near-collapse

Published 02/12/2010 | 05:00

Brian Goggin, Bank of Ireland chief
executive, was paid an annual
bonus of €2m in 2006/2007. His
total pay in that period hit €4m
Brian Goggin, Bank of Ireland chief executive, was paid an annual bonus of €2m in 2006/2007. His total pay in that period hit €4m

IRELAND's banks have largely failed to reform the pay and bonuses structures that contributed to their near-implosion, the Central Bank has concluded.

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The comments followed the Central Bank's first review into the remuneration policies of six major banks and building societies.

The review's "discouraging" findings included the fact that some banks are continuing to pay signing on bonuses and golden handshakes, while banks remain slow to disclose pay data to shareholders.

The probe also found one instance of a senior bank executive making representations on his own pay to his board, while banks generally were unprepared for new EU rules coming online in January.

Shoddy

The Central Bank has no power to take action against banks' shoddy remuneration practices until new rules are introduced in January.

A further review is planned for the second quarter of 2011, when enforcement action may be taken if the situation doesn't improve, the Irish Independent understands.

"We conducted this review to determine whether banks have ceased those remuneration practices which fostered inappropriate risk-taking and inadequate risk management," said Jonathan McMahon, head of Financial Institutions Supervision at the Central Bank.

"While the majority of banks have started to reform their remuneration policies and practices, the balance of our findings is discouraging, with only one bank having taken an obvious lead."

A letter sent from the Central Bank to the chief executives of all six institutions identified failings in four separate areas.

The review set out to determine whether banks were adequately prepared for new European rules. "We would have expected banks to be much further along in relation to their compliance arrangements," Mr McMahon wrote.

The review also assessed governance of remuneration and found that "adequate risk and remuneration experience" wasn't evident in "a number of banks reviewed".

"Procedures to determine remuneration were not clear, well-documented or internally transparent in the majority of the banks," Mr McMahon added.

On severing the link between remuneration and risk taking, Mr McMahon said it was "clear" that "considerable further work needs to be done" given the continued instances of bonuses and other undesirable practices.

Banks were also criticised for failing to engage adequately with stakeholders on remuneration, with the Central Bank finding "little evidence" that institutions would provide sufficient information to give shareholders a "say on pay".

Despite the review's scathing findings, five of the six institutions involved last night defended their remuneration policies and practices.

AIB said it had been "reviewing its remuneration policies" to ensure they were in compliance with existing and incoming requirements.

"Concerning bonuses, we work within the guidelines of the regulatory framework," the bank added in a statement.

Bank of Ireland said it was awaiting a letter from the Central Bank on its specific performance and would "deal with any recommendations if there are any".

Irish Life & Permanent (IL&P) said it had "undertaken significant changes" to its remuneration system "including steps to realign appetite and address an over-emphasis on bonuses".

"We are confident that our governance and oversight of remuneration practices are adequate and our procedures are clear, well documented and transparent," IL&P added.

EBS said it was "satisfied" that it had taken "appropriate steps" in relation to its remuneration practices, while Irish Nationwide said it was "committed to best practices" and no longer paid any bonuses.

Anglo could not be reached for comment.

Irish Independent

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