Sunday 4 December 2016

Taxing bonuses will only push wages up

Published 21/12/2010 | 05:00

The AIB bonus "scandal" has become the latest in a long line of sensationalist overreactions. AIB is a large financial institution whose stability is more or less critical to the country.

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It employs something in the region of 25,000 staff. The vast majority of AIB employees played no part in the inappropriate risk-taking by the bank, and a significant number have suffered financially through the dilution of the value of shares they were awarded.

It is industry practice for discretionary performance bonuses to be a component of remuneration. This allows companies to manage their costs by keeping the fixed cost of salaries and related employer contributions to a minimum. In order to be able to attract and retain the talent required to operate a profitable franchise, AIB and other banks must be able to pay something close to a market rate. As paying bonuses has been made irrational by the 90pc tax, the risk is that the banks will have to pay higher salaries.

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