State must pay millions if it sacks bank chiefs
Executives entitled to huge severance pay and pensions
Published 20/04/2011 | 05:00
THE Government faces the prospect of having to pay millions to senior bank executives if it wants a clearout at the top of financial institutions.
It emerged last night that highly paid bank executives have watertight contracts that will give them huge severance payments and pension lump sums if they are sacked.
Former AIB managing director Colm Doherty got a €3m package when he was forced to leave the bank last November.
Senior executives across the banking sector would also be entitled to payoff deals in proportion to their current salary and pension packages.
The Financial Regulator has promised to use new powers to sack those found to have "contributed" to their institutions getting a bailout by taxpayer.
The Irish Independent has learned that there will be a slew of further payments to top banking executives if the regulator decides to sack them.
The Government and the opposition denounced Mr Doherty's "sickening" package, but Finance Minister Michael Noonan admitted there might be others who have similar entitlements.
Mr Doherty last night said he was entitled to the €3m package, which he insisted was "strictly in accordance" with his contract. "The terms of my employment contract as group managing director of AIB, were negotiated with the full knowledge and approval of the Department of Finance before I took up the position.
"The severance and pension payments I received upon the termination of my employment were strictly in accordance with the terms of that contract," he said.
Former Finance Minister Brian Lenihan, who was in power when Mr Doherty stepped down, said he had not seen Mr Doherty's contract.
However, it emerged that the head of the Department of Finance was told in advance about the lucrative pension rights.
According to an email obtained under the Freedom of Information Act, Department of Finance Secretary General Kevin Cardiff was told by AIB about Mr Doherty's pension arrangements in November 2009 -- when a row was raging over the appointment.
Mr Cardiff sent an email to AIB's then-chief executive Eugene Sheehy to confirm the discussions he had with then-AIB chairman Dan O'Connor.
He wrote: "Mr Doherty to take up post as previously discussed at a salary of 500k, representing a voluntary reduction of 133k. Existing and accrued pension arrangements stay in place, including payments in lieu of pension, contributions, strictly in line with contractual obligations to Mr Doherty."
There was no sign of Colm Doherty at his home in Howth, Co Dublin, yesterday.
Leading legal experts last night warned that even if bankers are forced out because of their own negligence, sacked executives could still be entitled to multi-million euro payoffs.
Regulator Matthew Elderfield will soon begin a review into whether bosses at bailed out banks meet new "fitness and probity" standards in light of their roles in the run-up to their banks' demise.
He has insisted that those who fall short of the standards will be "removed" by January 2012. But legal experts last night said executives removed by the regulator will likely still be able to claim severance packages.
Industry sources said chief financial officers and other senior executives would typically get between six months' and three months' salary in lieu of notice, plus the pension top up.
Minister Michael Noonan has also ordered a shake-up of bank boards and management following yesterday's publication of the Nyberg report into the origins of the financial crisis.
Mr Noonan wants all bank board members in place before September 2008 to step down by early next year.
Allied Irish Banks announced hours later that the last three directors to have been appointed before the recession began are to step down. Bank of Ireland said it was considering the report, and was "very aware of its responsibilities to provide a considered and comprehensive board renewal plan".