Paschal Donohoe’s sale of the State’s remaining shareholding in AIB this week will pave the way for a crisis-era agreement that governed the Minister for Finance’s engagements with the bailed-out bank to be torn up within weeks.
The relationship framework – tweaked in 2017 as Donohoe proceeded with AIB’s initial public offering (IPO) just days into the job and his first stint in the role – gave the Minister the right to be given sight of business plans before these were adopted, consulted on any deal or investment worth more than €100 million and get prior notice of a senior executive appointment before it was announced.
On remuneration, the document said that “any incentive arrangements for directors and senior executives are closely related to their performance, measured by the achievement of relevant targets, such targets having regard to the achievement of the business plan”.
It was a moot clause, of course. Bank bonuses above €20,000 have been in effect banned across rescued banks by way of a prohibitive 89 per cent supertax for the past decade-and-a-half. (Indeed, Donohoe only allowed for variable pay up to that level to be introduced in late 2022, after Bank of Ireland returned to full private ownership.)
‘Amsterdam is a whole lot easier to get around than Dublin ... You get a much better quality of life here’
Wills and spouses: Why you cannot just cut a wife out of your will
In today’s US, saying ‘be careful with crypto’ sounds like socialism
Paschal Donohoe’s refusal to tackle banker bonus ban is hitting those who bought State’s shares
Bank executive pay remains as politically thorny today as at any stage the financial crash – even if the State has now recovered, in nominal terms at least, just over the €29.4 billion pumped into AIB, Bank of Ireland and PTSB during the crisis. It continues to hold a 57 per cent stake in PTSB, which at present has a market value of €620 million, and stock warrants in AIB, estimated to be worth about €300 million.
Donohoe confirmed to reporters on Tuesday, after selling the Government’s last 2 per cent stake in AIB to stock-market investors, that he is lifting the €500,000 basic salary cap at AIB and PTSB.
He argued that it was not appropriate for the Government to have a role in setting the pay at AIB and Bank of Ireland “when we no longer own a single share in those companies”. Lifting the cap at PTSB is to prevent it being put at a competitive disadvantage when it comes to hiring and retaining executives.
He’s right. But the logic fell apart when he said that he had “no plans” to remove the 89 per cent super tax on bonuses, knowing it is enshrined in law (the Finance Bill 2011) and requires legislation being passed through the Oireachtas. There are no votes in that.
[ How AIB, once worth less than its art collection, came back from the brinkOpens in new window ]
To be clear, the long campaign by bankers to reintroduce bonuses was largely ham-fisted. It started off with a pitch by AIB’s then chairman David Hodgkinson to the Department of Finance in early 2014 when the bank had barely returned to profit after the crisis, let alone start to repay its rescue bill. Arguing for a return of variable pay when the sector spent much of the next decade knee-deep in the tracker mortgage scandal was also tone deaf.
But lines have been drawn under those.
To see where AIB is now headed on the executive pay front, you only have to look at its main rival.
Following the lifting of pay caps in Bank of Ireland in late 2022, its board came up within months with a plan to award its chief executive, Myles O’Grady, the equivalent of 25 per cent of his basic salary from 2024 by way of shares in the group, rising to 50 per cent this year. O’Grady was hired two-and-a-half years ago on a fixed salary of €950,000.
With the stock awards set to soar to 100 per cent of salary next year, his total remuneration will top €2 million, when pension entitlements are also included.
The fixed share bonanza, which have trickled down to other senior Bank of Ireland executives, means that top employees have skin in the game alongside other investors. The board, in fairness, has also decided that executives must now hold on to stock for five years after they are received, up from three years previously. And it argues the CEO’s total package will remain about 60 per cent below the median maximum remuneration opportunity that heads of mid-tier UK banks and other top-10 Iseq companies enjoy.
But the no-strings nature of the stock awards – to get around the fact that performance-related pay above €20,000 remains outlawed – is not ideal for investors who now hold the shares that the Government sold in the banks. It treats success, mediocrity and even underperformance as one and the same.
It also flies in the face of carefully thought-out EU rules brought in after the financial crisis. These limit variable pay to 100 per cent of salary – or 200 per cent if explicitly approved by at least two-thirds of shareholders. These also include provisions for bonuses to be docked or clawed back when staff engage in risk-taking that causes losses later.
The Irish solution to an Irish problem is even more incongruous when you consider that senior finance executives are now subject to one of the strictest individual accountability regimes in Europe – by virtue of rules that came into force almost 12 months ago.
