independent

Wednesday 16 April 2014

Secret bid by AIB to bring back bonuses is shot down

David Hodgkinson, executive chairman of AIB
David Hodgkinson, executive chairman of AIB

THE Government has slapped down attempts by AIB to pay bonuses to top bank executives.

The Department of Finance yesterday poured cold water on the idea after it emerged that the bank had been holding secret talks with the department that would have pushed senior executives' pay above limits introduced in the wake of the banking collapse.

Salaries for senior executives at bailed-out AIB have been capped at €500,000 and bonuses have been banned since late 2011, after the State poured €21bn worth of taxpayers' money into the lender at the height of the financial crisis.

Only Finance Minister Michael Noonan has the power to remove this rule.

AIB chairman David Hodgkinson held talks with Department of Finance officials in recent weeks aimed at reintroducing bonus schemes for senior staff as early as this year.

But the Department of Finance told the Irish Independent it had no plans to change pay policy in bailed-out banks.

AIB made the request, experts told the Irish Independent, because it was under increasing pressure to attract and retain staff.

It is competing for senior people with lenders like Ulster Bank and KBC, who do not have similar limitations on what they can pay their executives.

Ulster Bank poached AIB finance chief Paul Stanley last year.

“There is definitely a concern out there that AIB is at a competitive disadvantage,” Merrion Capital banking analyst Ciaran Callaghan said yesterday.

Salary caps and bonus bans are also in place at Permanent TSB and Bank of Ireland, which also received taxpayer-funded bailouts.

The rules only apply to staff hired after 2011 – which is why Bank of Ireland chief executive Richie Boucher received a pay packet in excess of €800,000 last year.

Sources said Bank of Ireland could be next to ask for an abolition of the salary cap.

It is regarded as far more stable than AIB and returned to profitability at the end of last year.

Senior bank executives are generally paid less than their European peers or salaries paid by publicly quoted Irish companies, according to a report by consultants Mercer published last March.

This may end up hurting taxpayers as well as bank executives, others warned.

The State owns almost all of AIB after bailing it out, and Mr Noonan recently indicated his intention to sell this stake before 2016.

Maximise

If the Government wants to maximise how much it earns from the sale of its stake in AIB, Mr Callaghan said, it needs to consider relaxing the salary cap.

“Retaining staff and bringing in the best talent will help improve AIB’s performance and standing in the market, and ultimately maximise how much money taxpayers earn from the sale of AIB,” he said.

There is huge public and political ill-will, however, on the issue of bankers salaries.

AIB’s bailout accounted for almost a third of Ireland’s €64bn rescue of its financial system after the worst real estate collapse in Western Europe. Consumer groups were aghast yesterday at the idea that its bosses could be granted larger salaries.

“This is absolutely unbelievable,” said Michael Kilcoyne, chairman of the Consumers’ Association of Ireland. “It’s further proof of just how completely out of touch the bank’s management are with normal people.

“I don’t accept that they need to pay more to attract senior staff,” he said.

“They paid enormous salaries during the boom and that in no way ensured sound judgement.”

Fianna Fail spokesman on public expenditure and reform Sean Fleming said there was no justification for any reintroduction of bonuses.

“As long as AIB fails to act to help people in mortgage arrears, is running a loss, remains almost wholly owned by the taxpayer and is not doing enough to meet the need of businesses in need of credit there can be no talk whatsoever of a return to a bonus culture.

“The fact that executives would think that it was an idea worth pursuing gives a worrying glimpse into the emerging culture at the bank,” he said.

Irish Independent

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