Executives at financial institutions covered by the State bank guarantee are to have their salaries capped at €500,000 in line with recommendations included in a new report, Minister for Finance Brian Lenihan said today.
The Minister for Finance has written to the seven institutions covered by the guarantee seeking a salary cap of €500,000 or lower and has indicated that any deviation from this "should take place only in very exceptional circumstances and with his agreement."
The decision to cap executives salaries comes after a number of banking chiefs announced they would be receiving salaries above this level.
Allied Irish Banks chief executive Eugene Sheehy said recently he expected to get paid €690,000 a year from 2009 onwards while Brian Goggin, the outgoing CEO of Bank of Ireland caused outrage when he announced he would be paid “less than €2 million” for the bank’s financial year to March 31st, 2009.
The salary cap recommendation is contained in a report by the Covered Institutions Remuneration Oversight Committee (CIROC) for reductions in prevailing base salary, bonus and pension levels for chief executives, chairs and ordinary board members.
The report recommends that the annual base salary for the chief executives of AIB and the Bank of Ireland should be in the region of €690,000, far more than that sought by the Minister for Finance. In addition CIROC suggests that the annual base salary for the chief executives of Irish Life and Permanent and Anglo Irish Bank be in the region of €545,000, while the chief executives at EBS and Irish Nationwide should be paid approximately €360,000 and the chief executive of Postbank, €230,000.
The report notes that after the year 2000, the conservative remuneration policy previously adopted by financial institutions changed dramatically with annual bonuses doubling for executives at many banks.
"The dramatically changing and volatile environment requires a radically different approach to that taken up to now. Remuneration policies must be reviewed to adapt to the new situation and this requires a fundamental re-appraisal of the overall levels and structure of remuneration packages, " the report says.
"In particular, we consider that in view of the current economic circumstances and the major changes in the banking environment, the compensation for senior executives of the covered institutions will have to be significantly more modest than has been the case in recent years.
The report found that the base salary paid to executive in a number of the institutions covered by the State guaranteee were higher than those paid in banks and bulding societies in Britain and in other companies of a similar size in Ireland.
It calls for pension arrangements of top executives to be reviewed and recommends that no bonuses be paid now or in the immediate future.
The Minister said that the Government had considered the recommendations in light of the downturn in the wider economy, the current position as regards the financial position of the covered institutions and the fact that larger economies have set lower caps on the salaries of Government aided financial institutions than those suggested by CIROC.
"The Government considers that the CIROC recommendations regarding bonuses, pensions, long term incentive plans and board sub-committees are appropriate but that remuneration terms should be lower than those recommended by CIROC," said a statement issued on behalf of the Department of Finance this afternoon.
The seven financial institutions covered by the bank guarantee are: AIB, Bank of Ireland, Irish Life and Permanent, Anglo Irish Bank, EBS Building Society, Irish Nationwide Building Society and Postbank.
Fine Gael finance spokesman Richard Bruton said the Government had "bottled it" on the issue of bankers' salaries, and that his party would have capped them at €250,000 as outlined in its private members' motion before the Dáil.
“The one thousand-plus people losing their jobs every day will wonder why the financial institutions being bailed out by taxpayers will now be paying their executives €500,000. With the international banking system in turmoil and laying off thousands of people around the world, there is no need to pay huge sums of money in order to retain top bank executives."
Green Party chairman Senator Dan Boyle said he was pleased the amount was lower than the figure recommended by CIROC.
"The move goes a long way towards hauling the banking system back from the obscenely high salaries and bonuses paid to bank executives in the recent past. That crazy system of pay and incentives played a major role in dragging Ireland into recession."
"We in the Green Party worked hard with our Government partners to set a generally lower limit for the bigger banks at €500,000. It is perfectly reasonable that the amount recommended by CIROC, should apply where it is lower than the government overall ceiling," he said.
