AIB executives will not receive bonuses in share sale

No bonuses or incentive payments will be given to senior executives in AIB as part of the expected share sale by the Government in the coming weeks, the Minister for Finance Michael Noonan has confirmed.

The minister has also reaffirmed that the bill for any advisor fees related to the initial public offering (IPO) of AIB shares would be picked up by the bank. The Department of Finance has estimated that this bill will be between €10 million and €13 million.

Mr Noonan was responding to questions from Sinn Féin's finance spokesman Pearse Doherty, who is opposed to the sale of a stake in AIB by the State.

In relation to bonuses, Mr Noonan said: “There are no bonus or incentive plans in place for AIB executives or staff linked to a potential IPO. The previous [Fine Gael-Labour] government placed restrictions on such types of remuneration in the Irish banks and these remain in place.”

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‘Optimal route’

Mr Noonan said an IPO was the “optimal route” for the State to take to recoup some more of its €20.8 billion investment in AIB, with the first window of opportunity being between May and July.

This would involve the sale of a 25 per cent stake in the bank to institutional and retail investors. The State currently owns 99.9 per cent of AIB.

Mr Noonan said the State would incur fees from an IPO of AIB but that these would be reimbursed by the bank as per an agreement in relation to any capital transactions.

The minister said fees would be payable to the “selling syndicate on the completion of a successful transaction only, and would be proportional to the value of the transaction”. Fees will also be incurred for legal and communications advice.

Mr Doherty also asked the Minister about the level of fees that AIB has paid or anticipates paying to its own advisers in connection with an IPO, but the company declined for “commercially sensitive reasons”.

Incentive plan

Market sources have indicated that some potential investors have signalled concerns to firms working on the upcoming deal about the fact that the Government has insisted that the management team will not be tied in to a long-term incentive plan.

Glass Lewis, one of the world's leading advisory firms to large investors on corporate governance issues in listed companies, said recently that it remains "concerned" that executive pay at Bank of Ireland is comprised solely of fixed salary.

It believes most remuneration should be based on performance-based pay “to promote alignment between executives’ and shareholders’ interests”.

According to market sources, the fact that the Government is holding such a firm line at the time of AIB’s flotation has led some would-be investors to express concern about the perception of political interference, which could have a bearing on the price achieved for the stock in the IPO.

In his responses to Mr Doherty’s questions, Mr Noonan noted that AIB’s management team met with a “significant number of investors” as part of a non-deal roadshow, which was designed to give an update on the bank’s performance and future prospects.