Wednesday 15 August 2018

BoI to seek shareholder support for bonus return

New BOI boss Francesca McDonagh
New BOI boss Francesca McDonagh

Gretchen Friemann

Bank of Ireland intends to canvass shareholder support for a return to executive bonuses in 2019 in an effort to cast off pay constraints imposed during the crash.

The group's decision to engage with investors about an "appropriate executive incentive scheme" is highlighted in a report by one of the world's biggest advisers on voting at shareholder meetings, Institutional Shareholder Services (ISS).

Bank of Ireland's attempts to reinstall executive bonuses comes as AIB's management also pitches for a return to bonus payments that would benefit 80-100 senior staff at the State-backed bank.

Last month AIB unveiled plans to offer a deferred annual share scheme that would see executives awarded shares each year up to the equivalent of 100pc of their salary.

Unlike Bank of Ireland, AIB's CEO has been limited by the Government salary cap that restricts bankers' annual salary to €500,000, meaning Bernard Byrne's total compensation could rise to €1m.

ISS points out the new Bank of Ireland boss, Francesca McDonagh, pictured, is receiving a far higher annual salary than her predecessor, Richie Boucher, due to her exclusion from a company pension contribution scheme.

But in its report, prepared ahead of the lender's annual general meeting on April 20, ISS notes it is "typical for variable pay to be based on multiples of salary. The terms of any new scheme will be assessed in consideration that such awards will be coming off a much higher CEO salary."

The group avoided nationalisation during the crash although it was partly recapitalized and included in a Government blanket guarantee on deposits and banks' own borrowings. As with nationalised AIB and Permanent TSB, executives at Bank of Ireland have not received a bonus payment since 2008.

However, as the banks return to profitability and restart dividend payments, the pressure to ease the ban on bonuses is likely to intensify.

ISS noted that Bank of Ireland's remuneration committee "will engage with major shareholders during 2018 in regard to the adoption of an appropriate executive incentive scheme" with "initial potential awards to be made in 2019".

Bank of Ireland also referenced the move in a statement notifying investors of the AGM and emphasised it will seek approval for the move from Finance Minister Paschal Donohoe and will "present any required resolution to shareholders in due course".

While the main Irish banks' efforts to re-establish bonus payments has sparked an angry backlash from some politicians - AIB's executives came under fire from Sinn Féin during a recent appearance at the Oireachtas Finance Committee - the move is supported by institutional shareholders.

Fund managers typically prefer bank executives to receive bonuses or variable pay so as remuneration remains closely linked with performance.

Both ISS and its peer, Glass Lewis, urged investors to support Bank of Ireland's executive pay policy.

ISS stressed to clients that it had received confirmation from the bank that "the cost to the group of the remuneration package of the new CEO is identical to the cost for the previous CEO".

Mr Boucher received a total pay package of €964,000 in 2017, which included €34,000 to cover his travel allowance and €240,000 as his pension funding contributions.

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