On eve of bailout, all eyes turn to bank bonus deals
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WHEN the plan to put another €7bn of taxpayers' money into AIB and Bank of Ireland finally appears -- presumably this week -- one can be sure that much of the reaction will centre on the bonuses paid to the top bankers. Which is a pity, since they have not received any yet.
The multi-million euro earnings for AIB boss Eugene Sheehy and Bank of Ireland's Brian Goggin were for 2007 -- before the State put any money into the banks -- and have long since been handed over. There are indications of what the banks intend to do for 2008, but it has not happened yet. The financial year for the two banks does not end until March.
That is not to say that past payments were right or sensible. The credit bubble and bust has turned the spotlight on the way that bankers have been paid, and whether that contributed to the debt-fuelled boom.
There is a cartoon character called Alex in the 'Daily Telegraph' newspaper, based on the doings in London's financial centre. Almost all of the jokes centre round the payment of the huge annual bonuses in the "City", reflecting the obsession they generate.
And no wonder. The bonuses often dwarf the salaries of the senior bankers -- and of staff much lower down the corporate ladder. In the boom years, everyone got bonuses. Human nature being what it is, people's spending grew to match their total income, even though much of that income was not officially guaranteed.
So bankers had every incentive to keep profits rising, so that the bonuses would keep coming. Did that encourage them to be ever more reckless in their lending, rather than admit it was time for a sensible bank to step back, even if that meant less profit?
Most members of the public are probably more exercised by the sheer size of the payments rather than their rationale. Bank of Ireland's Brian Goggin got €3m in the 12 months to last March, while Eugene Sheehy at AIB received €2m, of which 40pc was bonus. Serious money, by any standards.
Shareholders in the two banks, who have lost almost all their money, will be less than impressed. Likewise, the workers whose pension funds are in a sea of red because of the same share price falls. Not to mention everyone else who, as citizens, will be putting €10bn into the banks to restore their battered finances, with quite possibly more to come.
Perhaps those bonuses should not have been paid, even last March, when it was already clear that things were going very wrong. But the real question comes next month, when the 2008 payments are finalised. AIB has tried to head off trouble, saying that the salaries of Mr Sheehy and bank chairman Dermot Gleeson will be cut by 10pc. The chief executive will not receive a bonus, so his earnings will fall by around 40pc.
That is a big cut by any standards. But it will still leave him with a package worth €1m, when pension and perks are added. Will that qualify as the "huge sums" which Energy Minister Eamon Ryan says must stop? Or is it a big enough gesture from a man who could reasonably have expected to continue receiving bonuses on this scale? President Barack Obama thinks $500,000 is quite enough, but then he earns less than the Taoiseach.
The answer may lie with CIROC, the almost forgotten Covered Institution Remuneration Oversight Committee. Google it, and you will find a brand of vodka before a more precise search uncovers it -- an indication that there is a lot more heat than light on the bank bonus question.
CIROC was established last September, when the six domestic lenders were guaranteed by the Government. It is to review the pay and bonus structures at each of the six, whose remuneration committees must explain how they determine executive pay and bonuses.
CIROC is due to report in the next month. After that, CIROC and the lenders are supposed to work out how each of them will set pay in future. It lays the Government open once again to Labour leader Eamon Gilmore's jibe that decisions are always another report away. It will certainly have to be quick to affect the 2008 payouts.
Bank of Ireland sources indicate that its remuneration committee will do something similar to AIB, with a cut of up to 50pc in the 2007 earnings of top executives.
In the case of chief executive Brian Goggin, who is stepping down before his contract expires, that would still leave him with over €1.5m, despite one of the worst years in the bank's long history. Just as most people probably would, though, he may be more inclined to think of the €1.5m that is gone.
bkeenan@independent.ie
