| 9.5°C Dublin

AIB should be allowed to break pay cap, says Elderfield

CENTRAL Bank deputy governor Matthew Elderfield yesterday threw his weight behind AIB's campaign to pay its new boss above the banking pay cap and said the Government should consider abolishing the salary ceilings altogether.

The comments come a week after the public reacted with outrage when it emerged that bailed-out AIB wanted clearance to breach the €500,000 salary cap for its next chief executive.

"We're probably going to need to pay the bankers more if we want to attract some outside talent," Mr Elderfield told journalists yesterday, speaking on the fringes of an insurance industry conference.

"Right now, as taxpayers, we own the whole banking system. You want to get the best person available to manage our investment and maximise that."

The €500,000 pay cap emerged after the Ciroc review of bank pay back in February 2009 -- Mr Elderfield said it was now time to review those rules since the banks needed to "bring in people from the outside" to refresh management.

"You want to probably put Ciroc aside and say, now we're at a different phase," he added. "What was good three years ago when Ciroc came in (might not be good now), so it probably makes sense to have a fresh look at it."

Mr Elderfield also suggested that a new remuneration framework could be needed to deal with the banks' reorganisation into 'core' units that will continue and 'non-core' units that will run down loan books.

"We really want to get the incentives right for the people managing the run down of non-core activities, so that they do that swiftly but in a way that maximises taxpayer value but doesn't result in a fire sale," he said.

A spokesman for the Department of Finance declined to comment on Mr Elderfield's statements.

The Government is understood to be mindful that any move to set aside the banking pay cap would be politically unpalatable, though Taoiseach Enda Kenny last week said a bank might be allowed to breach the cap if it made an "exceptionally compelling case".

Business Newsletter

Read the leading stories from the world of business.

This field is required

The department would, however, take on board any views imparted by the Central Bank in a formal capacity, including views on appropriate bank remuneration policies.


On the fringes of yesterday's conference, Mr Elderfield also said he would "have to take a closer look" at Nama's plans to provide finance to property investors if the scheme involved "regulated activity".

"Offering a product that gives support to the market makes sense from a commercial point of view," he added.

"I don't have strong views on it in terms of any standards in regulation."

Earlier, Mr Elderfield told delegates at the European Insurance Forum that it was "perfectly reasonable" to enforce "tougher corporate governance" on Ireland's larger international insurance companies since crises at those companies could "pose significant policyholder detriment" and "reputational damage to Ireland's growth as an insurance sector".

The Central Bank's insurance supervisory team stood at 43 at the end of 2009 and will grow to 113 by the end of 2011, Mr Elderfield said.