Sunday 17 December 2017

Bonuses for bankers back on agenda at Department of Finance

Senior civil servants consider share-based incentive scheme

Laura Noonan

SENIOR officials in the Department of Finance accept that some form of bonuses will have to be re-introduced in the bailed-out banks -- but a political battle must still be fought to convince the Government.

The news comes as the department finalises new "relationship frameworks" to govern dealings with the banks and grapples with an industry-wide severance deal that may not be agreed until October.

State-supported banks are banned from paying bonuses under the terms of their bailouts, satisfying a public demand that bank staff should "share the pain" of their institutions' implosion.

In recent months, however, opinion in the Department of Finance has shifted towards recognising that it isn't feasible to maintain a total ban on bonuses indefinitely and still get the best out of the banks.

It is understood that senior officials are now taking a "realistic" view on bonuses and accept that something will have to be "worked out" to incentivise bank bosses and staff.

"The (Finance) Minister will have a lot of work to do politically," a source stressed, pointing to how the re-introduction of bonuses was likely to be perceived by the Government.

Any future system is likely to be "very straight-forward" with incentives that will be tied to long-term sustainable goals -- in marked difference to bonuses in the past which were linked to short-term targets.

Bonuses are also likely to take the form of shares rather than cash.

Some sources suggested the system could be use to lure fresh talent to the most senior level of Irish banks despite the €500,000 pay cap.

The first test case for this is likely to be AIB's new chief executive, who may be given a contract that includes rewards if the bank hits certain targets.

Some banks have also been arguing for more freedom to pay bonuses in their international divisions, where they have been losing their best staff to competitors.

Sources stressed that banks needed to be able to retain talent in order for the taxpayer to get the best return on its investment in the sector, which includes a 99.8pc stake in both AIB and Irish Life & Permanent and a 15pc stake in Bank of Ireland.

Others pointed out that the new bank chiefs who would potentially get bonuses had not been in place at the time of the crash and therefore should not be "punished" for the failings of their predecessors.

Meanwhile, the Department of Finance is finalising new "relationship frameworks" to govern interactions with AIB, Bank of Ireland, Irish Life & Permanent and Anglo Irish Bank/Irish Nationwide.

The frameworks are likely to mandate all banks to deliver monthly board packs to the Department of Finance and will require banks to consult Finance on "strategic" decisions including major asset sales.

The Department is also co-ordinating the banks' redundancy packages and sources said it could be October before a severance deal was hammered out. The deal will also have to be put to trade unions.

Irish Independent

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