Minister to review bankers’ pay as AIB bonus plan blocked

Minister for Finance Paschal Donohoe has signalled plans to review pay restrictions across bailed-out banks as they face competition for staff due to Brexit.

The move comes as Mr Donohoe pledged to use the State's 71 per cent stake in AIB to block plans to reintroduce executive share bonuses at the lender next year.

“I’m very clear that any changes in relation to compensation for the banking sector will have to be led by the Government,” said Mr Donohoe. “This is a sector that has received extraordinary support from the Irish taxpayer.”

Current pay caps and bonus restrictions, introduced in 2009, months after the State guaranteed the sector, remain in place, pending the outcome of an external review, expected to be completed by the end of the year, he said.

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Meanwhile, he said that he will use his AIB stake to vote against a resolution at its annual general meeting (agm) next week that would have allowed it establish a deferred incentive scheme, starting in 2019 and benefitting up to 100 top employees. The deferred shares, exercisable after five or six years, would have amounted to the equivalent of 100 per cent of annual salary.

However, Mr Donohoe said that he will abstain from a Bank of Ireland remuneration resolution at its agm on Friday which would give it the imprimatur to engage with major shareholders this year "in regard to the adoption of an appropriate incentive scheme" for executives, with potential awards being made next year. Taxpayers continue to own 14 per cent of the bank.

The Minister said that he does not believe there is a risk the three domestic Irish banks will lose key staff as some overseas firms move activities to Ireland from London to deal with Brexit.

“However, it is a fact that those banks will not be subject to this [pay restriction],” said Mr Donohoe. “That is why what I believe is appropriate is to look at how this matter can be dealt with in the future.”

AIB noted that it had highlighted at the time of its initial public offering last June "the elevated risk associated with the current remuneration structure". It said its planned new policy was in line with best practice set out last year by the European Banking Authority.

Still, the bank welcomed the Minister’s announcement that he plans to establish a review on banking pay practices.

The Financial Services Union said that it will be "strongly making the case that any review has to look at pay of all banking staff, especially those on low to middle incomes or on short-term contracts – not the well heeled at the very top". It said it remains opposed to bank executive bonus schemes.

Even if the outcome of the remuneration review recommends a return to incentive plans in the sector, rescued banks face additional headache in returning to bonuses, which have been banned across rescued Irish lenders since 2009. Currently, any bonus plans involving a bailed-out Irish bank would be subject to an effective tax rate of 89 per cent, as a result of a measure injected into the 2011 Finance Act.