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.
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.