AIB has said that Brian Lenihan rubber-stamped the €2.7m pay package for its managing director Colm Doherty when he stepped down last year.
The bank, in its 2010 annual report, claimed that the then finance minister considered Mr Doherty's terms and conditions in November 2009 -- and raised no objection.
It said Mr Lenihan approved Mr Doherty's "existing entitlements'' at the time.
The annual report reveals that AIB directors paid themselves €4.3m in 2010.
The bank revealed the sequence of events when Mr Doherty became managing director in 2009.
It said the Government's own pay watchdog for the financial sector (known as CIROC) signed off on his contractual entitlements, including cash payments to compensate him for a cap on his overall pension benefits.
"Mr Doherty's entitlements in lieu of pension benefits accrued above his personal fund threshold were notified to, and discussed with, the Government-established Covered Institution Remuneration Oversight Committee (CIROC) in January and February 2009,'' said AIB. It pointed out that the Revenue Commissioners also signed off on the arrangements.
"Subsequently, AIB sought agreement from the relevant authorities on Mr Doherty's contractual entitlements in the context of his appointment as group managing director,'' explained the bank.
"The matter was considered in November 2009 by the then Minister for Finance, who agreed to Mr Doherty's appointment on a voluntarily reduced salary and continuation of existing contractual entitlements, including payment of pension allowances."
The report reveals that Mr Doherty was granted a €432,000 salary, benefits of €50,000, payments in lieu of pension benefits of €1.96m, a termination payment of €953,000 and another pension payment of €1.04m
Mr Doherty was forced to step down last year when Mr Lenihan demanded changes at the top as part of the recapitalisation of the bank.
It had been reported during 2009 that Mr Lenihan did not want Mr Doherty in the senior role and wanted the AIB board to find a suitable outsider.