Minister for Finance Michael Noonan has directed Bank of Ireland, AIB and Permanent TSB to reduce their staff remuneration costs by 6 to 8 per cent to aid their return to profitability.

The reductions are to be introduced by cuts in payroll and pension benefits, and new working arrangements and structures to deliver efficiency gains. The banks will be expected to begin delivering the cost reductions in 2014.

This direction comes on foot of a report on bankers pay for the Government by consultants Mercer.

Mr Noonan said the remuneration cuts were “essential” for the banks to achieve a ”return to profitability” and “repay the State’s investment through a return to private ownership”.

He said “other options and measures” would be introduced by the Government to achieve the cost reductions in the event that the banks do not effect the savings that are being sought.

The report shows that salary levels at Irish banks are behind European averages for most grades. Since 2008, total remuneration at Bank of Ireland, AIB and PTSB fell by 6 to 11 per cent but rose by 1 per cent at Irish Bank Resolution Corporation, which largely reflects a premium paid to staff of that bank to compensate for the fact that it was in wind up mode prior to its liquidation by the Government on February 7th.