BANK OF Ireland has been banned from paying bonuses, except where permitted by the Government or following a court order, for two years as a condition of the latest State bailout.
The wide-ranging curbs on pay, bonuses and pension payments have been laid down as a condition of the Government agreeing to buy any new shares issued that are not bought by shareholders in a €1.9 billion capital-raising this month.
Where the bank is given permission by the National Treasury Management Agency to pay bonuses, such payments must not encourage “excessive risk taking” but reward “long-term value creation”, according to terms set down by Minister for Finance Michael Noonan.
In a letter to the board of the bank last week, Mr Noonan stipulated that the bank must take “every reasonable action” to fully defend any legal action taken by an employee for the payment of a bonus or a commission.
Two remaining executive directors on the board of the bank – chief executive Richie Boucher and finance director John O’Donovan – will be forced to take a cut in salary this year as the Minister has stopped the bank paying in excess of the €500,000 pay cap for bankers, which includes any salary, bonuses, commission payments or fringe benefits, without prior consent.
Mr Boucher, Mr O’Donovan, who is retiring later this year, and two other executive directors, who have since resigned, received salaries greater than the €500,000 pay cap last year. Mr Boucher’s salary was €690,000 in 2010.
The bank will also be prohibited from making any “golden parachute” payments to directors, executives or other staff or pay any pension top-ups without prior consent.
The Minister said that if the bank was in any doubt about what constituted a bonus, it should consult the Department of Finance before paying it.
His predecessor Brian Lenihan criticised the bank for misleading him after it admitted last March to paying €66 million in bonuses, despite previously claiming that none was paid.
The department criticised Mr Boucher for “hiding behind particular definitions” of payments to staff in February.
Bank of Ireland, which is already 36 per cent State-owned, was ordered to raise €5.2 billion by the Central Bank following stress tests in March.
The bank, the last to avoid State control, is facing virtual nationalisation as shareholders have voiced opposition to injecting further cash after seeing their shares wiped out in value again following a share sale last year.
The Minister has also ordered that the bank must lend €3 billion to small- and medium-sized businesses this year, €3.5 billion in 2012 and €4 billion in 2013 as a condition of the Government’s support of the latest capital-raising.
