'Irish Times Coverage'

Bailed-out banks to be allowed pay bonuses of up to €20,000 under Donohoe plan


Date: 28 November 2022

Minister to propose lifting pay caps at Bank of Ireland, in which the State no longer holds any shares, and put AIB and PTSB on the same path.

Minister for Finance Paschal Donohoe will seek approval from the Cabinet on Tuesday to allow bailed-out banks to pay bonuses of up to €20,000 and put lenders on a path to free themselves from executive pay restrictions, The Irish Times has established.

He also plans to allow banks to provide executives with non-pay benefits, such as subsidised healthcare, which has effectively been banned since the financial crisis. The three surviving banks, AIB, Bank of Ireland and Permanent TSB, employ more than 20,000 combined.

The surprise development is on foot of a recommendation in the Department of Finance’s long-awaited retail banking review report, which is set to go to the Cabinet tomorrow.

It comes as Mr Donohoe prepares to swap roles with current Minister for Public Expenditure Michael McGrath in less than three weeks. Performance-related bonus payments are likely to be limited as banks seek to avoid driving up costs.

Mr Donohoe plans to remove executive pay restrictions at Bank of Ireland, after it sold its remaining shares in the lender in September.

In any event, chief executives at the bank have enjoyed salaries well in excess of the wider €500,000 industry limit, as the company avoided nationalisation after the crash. The bank’s newly-installed chief executive, Myles O’Grady, is on the same €960,000 package as his predecessor, Francesca McDonagh.

It is understood that the Cabinet will also be asked to give the nod to a proposal that the €500,000 pay cap will be removed at AIB and Permanent TSB, once the Government’s stakes fall to what are being described as appropriate levels.

The State’s holding in AIB has fallen from 71 per cent to 57 per cent so far this year and is expected to dip below the 50 per cent in early 2023. Taxpayers also own 63.5 per cent of Permanent TSB.

Bank lobbyists have argued that the pay restrictions have put the domestic banks at a competitive disadvantage in attracting and retaining talent, as they compete with international banks in Dublin and, increasingly, technology companies for key staff.

Rescued Irish lenders have been subject to general government restrictions of €500,000 on executive pay and an outright ban on variable pay since early 2009, shortly after taxpayers were forced to guarantee the sector.

In addition, legislation introduced through the Finance Act 2011 had imposed an 89 per cent tax rate on any bonus amount above €20,000, in the event that such a payment was made to an employee of a bailed-out bank. Staff of stockbrokers Davy and Goodbody, which were acquired by Bank of Ireland and AIB, respectively, in the past 18 months, are exempt from this.

The planned remuneration changes stretch to what is allowed by the Government, without having seek a law change. Observers say that while it would be generally politically difficult to secure Oireachtas approval to ease banker remuneration restrictions, it is even more so in the current environment as the Coalition only has a wafer-thin majority and households are grappling with a cost-of-living crisis.

Meanwhile, the Minister also plans to follow a recommendation in the banking report to prepare the path for legislation to protect access to cash and provide for the regulation of providers of ATM services.

A spokesman for the Department of Finance declined to comment on the contents of the banking report and the Minister’s plans.

Mr Donohoe’s move to ease pay restrictions follows the recent completion of remaining bank tracker-mortgage investigations and comes as the Government pushes legislation through the Oireachtas to make it easier for regulators to hold senior managers in financial firms to account for failings under their watch.

A previous Government-commissioned report on bankers’ pay, submitted in mid-2019, is known to have called for an easing of pay restrictions and an effective ban on bonuses across bailed-out banks. It was never brought to Cabinet or published.

Some 84 per cent of 160 compliance officers that took part in a recent Compliance Institute/Mazars survey said the incoming senior executive accountability regime would make it hard for finance firms to hire people into senior roles that fall under the scope of the rules.

Bank of Ireland and AIB were fined a combined €197.2 million for their roles in the tracker mortgage scandal this year. PTSB was fined €21 million in 2019.

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