The latest special pleading by AIB to the Government for permission to breach the cap on senior executive salaries is likely to fall on deaf ears – and understandably so.
The chairman of the bank, Jim Pettigrew, came up with a fresh rationale for why the cap – imposed as part of the €20.8 billion State rescue of the bank in 2009 – should go. His argument is that the Government’s plan to sell its remaining 40.8 per cent stake in the bank would be hindered if the executive directors don’t get paid the sort of salaries enjoyed by their peers in privately-owned banks. Potential investors would be concerned about the bank’s ability to hold on to its top talent, which would affect the price the State gets for the rest of its shares.
The argument that the true value of AIB – one of half of a virtual duopoly in the domestic banking market in Ireland’s well-performing economy – is fundamentally a function of how much it pays its top executives says more about remuneration culture in the banking industry that it does about economic reality.
Equally flawed is the suggestion that individuals of the calibre implied by Pettigrew in his letter to Minister for Finance Michael McGrath, would not have the sense or foresight to wait until the State divests in the next year or two and then reap the fruits of their labours. This was the case with Bank of Ireland, where the cap is now gone and some bonuses have returned. The Government has said that the cap on the other banks will be removed when the State shareholding falls to a “more appropriate” level.
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Based on current valuations taxpayers will not be getting all their money back when the final tranche of shares in AIB is sold, with a shortfall of around €3 billion predicted between what was put in during the rescue of the banking sector and what is returned to the taxpayer. Conceding the pay cap under these circumstances would amount to an own goal for the Government, particularly as it heads towards an election against a backdrop of high mortgage rates, low deposit rates and strong domestic bank profits.