Thursday 13 December 2018

Proxy advisory firms pick holes in AIB's bonus plan

Bernard Byrne
Bernard Byrne

Gretchen Friemann

AIB's efforts to re-introduce share bonus schemes for its top executives is likely to receive support from institutional shareholders at its annual general meeting later this month, after two influential investor advisory firms greenlighted the move.

But the proxy advisory firms - Institutional Shareholder Services (ISS) and Glass Lewis, whose recommendations are widely used by investors when deciding how to vote at AGMs - also highlighted a lack of transparency in the State-backed bank's proposed remuneration changes. Bonus payments to Irish bankers were stopped in late 2008. But as the economy recovers and the two pillar banks restart dividend payments, the boards of AIB and Bank of Ireland are pressing shareholders to approve performance-related pay schemes.

Both campaigns to revive motivational payments will be resisted by the Government, which owns 14pc of Bank of Ireland and 71pc of AIB. Last month, Minister for Finance Paschal Donohoe said he had "no current intention to lift any of the remuneration restrictions that are in place for the banks".

While this stance is unlikely to shift in the near term, question marks remain over how long it can sustain that position.

Last year, AIB chief executive Bernard Byrne encouraged the Government to shed its remaining holding in the group while the share price conditions remain robust. Despite the political controversy surrounding bank bonus schemes, AIB will ask shareholders to vote on a deferred annual share plan at its AGM on April 25, with the awards payable in 2019 and based on this year's results.

However, Glass Lewis has cited a number of disclosure gaps in the new pay policy, including the lack of any guidelines on executive share ownership.

The firm also pointed out the bank failed to "provide assurance" it will limit equity-based awards to 10pc of AIB's issued share capital "over a 10-year rolling period". In its report to clients, Glass Lewis said "we believe the company should set and disclose such a policy, so as to assure shareholders that dilution will remain within a reasonable range".

Meanwhile, ISS raised concerns at the lack of service contracts for non-executive directors and said AIB has pledged to improve disclosure on this issue in "future years".

Irish Independent

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