AIB seeks return of bonuses and end of executive pay cap

AIB has raised with the Government the issue of bank bonuses being reinstated and the cap on pay for executives being lifted.

It is understood that the matter was raised with officials at the Department of Finance earlier this month by AIB chairman David Hodgkinson and Jim O'Hara, who chairs the bank's remuneration committee.

The Department of Finance confirmed yesterday that the matter had been discussed but declined to comment further.

A source described the talks as exploratory and that any move on pay or bonuses would only happen in the event of the bank returning to profitability.

The Government currently imposes a cap of €500,000 on bank executives and no bonuses are allowed. In 2012, AIB chief executive David Duffy was paid a salary of €475,000 and a pension payment of €71,000 for a total remuneration of €546,000.

This move on pay was said to be part of a long-term strategy by AIB to retain and secure key staff. The bank is concerned that it could lose key personnel to rival Bank of Ireland, which has largely freed itself of State influence having repaid its contingent capital notes and preference shares.

The Government’s holding in Bank of Ireland is just under 14 per cent, compared with 99.8 per cent with AIB.

Precise details of the items being sought by AIB were not available yesterday but they are thought to include share options and incentive packages, according to a report by Bloomberg.

Fianna Fáil TD Seán Fleming said AIB should be "sent packing" by the Government, given that the bank was bailed out to the tune of €20.8 billion by taxpayers, continued to be loss-making and had yet to deal meaningfully with its mortgage arrears customers.

Excessive bank bonuses
Meanwhile, a super tax introduced by the previous government to prevent excessive bank bonuses appears to have had a dramatic effect, according to information supplied by the Department of Finance.

The late Brian Lenihan introduced a law in the 2008 budget that allowed an additional charge on bonus payments over €20,000 paid to employees of any of the banks or financial institutions that received financial support from the State.

The new charge applied a rate of universal social charge of 45 per cent for bonuses of over €20,000. Combined with income taxes and PRSI, there was an effective tax rate of 90 per cent on all such bonuses.

Replying to a parliamentary question from Joanna Tuffy (Labour), Minister for Finance Michael Noonan disclosed that 47 individuals in the six banks and institutions covered by the guarantee received bonuses in 2011.

The take from the 45 per cent USC rate was €1.3 million. That meant that the overall bonuses paid to those individuals was in the region of €4 million, or about €80,000 each.

The figures supplied by the Revenue for 2012 showed that no bonuses in excess of €20,000 were paid that year by any of the covered institutions.

Dramatic change
Ms Tuffy said last night the dramatic change in 2012 showed that the measure was a success and she argued that such measures could be extended to excessive bonuses and salaries on State commercial companies where there was a bonus culture and a tradition of high salaries.

“Similar measures could be extended to bonuses in the wider public sector and agencies and maybe even in relation to things like top-ups and salaries that breach pay caps.”