A DECADE AGO, we faced an appalling vista. Our banks were in crisis and unemployment began to spiral as our public finances went over a cliff.
Those days are thankfully behind us and we have made much steady progress in transforming our great country again to one of the fastest growing economies in the EU.
During those dark days, a number of policies were introduced to assist us in getting back on the straight and narrow. Where our banks are concerned this meant a ban on bonuses, a cap on certain forms of compensation and a very high tax level for additional forms of pay.
Unchanged stance
The government stance on bankers’ pay has remained unchanged since the financial crisis. And this is the right thing to do.
The far-reaching restrictions that were put in place, for those banks in which the State is a shareholder, limit the amount of pay that staff in AIB, Bank of Ireland and PTSB can receive. This stands at €500,000.
Bonuses and many other benefits also cannot be paid.
This applies to the 23,000 staff across the three banks, whether they live and work in Ireland, the UK or elsewhere. As well as ensuring that those at the top of the banks do not earn in excess of the cap, restrictions also mean lower level bank officials cannot receive variable pay, in the form of bonuses or allowances, or any form of additional benefits linked to their performance.
AGM season
Recent weeks have seen AGM season kick off for a number of the banks, including Bank of Ireland and AIB. As the largest shareholder in AIB (with a 71% share) and Bank of Ireland (with a 14% share), I, on behalf of the State, was required to vote on various resolutions being put to shareholders in respect of pay and bonuses.
The Bank of Ireland resolution looked at the possibility of developing an incentive scheme for all staff and reverting to shareholders in the future. I abstained on this vote (a 14% share would not be sufficient, in any case to block the resolution).
AIB’s resolution was markedly different in that it proposed a formal share option scheme for senior executives to the value of 100% of their pay. I voted against this proposal. Now is not the time.
My views were clear
So why were these resolutions brought forward at all? Well, the banks’ boards are independent of me, as Minister. Their shareholders also have a right to vote on this, as well as a range of other issues. My views, however, were clear regarding how I intended to vote.
All that said, I acknowledged this week that it is possible, in the future, that the context for bank pay could change; things are changing in the economy, Brexit is on the horizon and that will likely bring with it more intense competition for talent across the sector.
We are also likely to see more companies moving into Ireland, in the coming years, who will not be subject to the restrictions in the way that some of our banks are.
With our economy almost back to full employment, the environment in which all of the companies who are based here operate has altered, and will continue to change. It is important that the right policies are in place to ensure a competitive but also a fair playing field.
A review of policy
For that reason, I have initiated a review of bank remuneration policy so that I can determine whether or not the bank pay policy that is in place is fit for purpose.
This will be done through the procurement of an external consultant to advise me on how policy in this area might best be developed in the future.
The review, I expect, will take most of the year to complete, with the outcome not predetermined. Irrespective of what that outcome is, and what advice is given on the reintroduction of bonuses, the ‘super tax’, which sees 89% of bonuses being paid back to the State will remain in place.
The power to alter that remains exclusively in the hands of the Oireachtas.
Paschal Donohoe is Minister for Finance & Public Expenditure and Reform.
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