Moral disapproval by Government Ministers of excessively high rates of pay and pensions paid to some bankers and retirees is an inadequate response to an intolerable situation. Yesterday Tánaiste Eamon Gilmore, said it was unacceptable that six executives at Irish Bank Resolution Corporation (IBRC) – formerly Anglo Irish Bank and Irish Nationwide – are each being paid over €500,000 a year.
Some €31 billion of taxpayers’ money has been injected into these failed banks to cover loan losses and to repay bondholders. Last April the bank rejected the request for pay cuts by Minister for Finance Michael Noonan. It claimed that “further pay cuts would create a risk for the bank” by making it harder to retain staff, thereby jeopardising IBRC’s efforts to recover assets for the State. Mr Noonan accepted this. Yesterday, Mr Gilmore, however, revealed that consultants were advising the Department of Finance on pay cuts at the bank. Is this a change of attitude by Mr Noonan? One hopes so.
Much harder to justify are the generous pension provisions enjoyed by former key executives at other failed banks the State has rescued. This week Taoiseach Enda Kenny asked retired AIB executives to accept the bank’s request for voluntary pension cuts. A former chief executive, Eugene Sheehy, has accepted €250,000 a year rather than €300,000 to €325,000. How many others will do so?
AIB’s financial lifeline has cost the taxpayer some €21 billion. Without it, the six-figure pension payments that Mr Sheehy and others enjoy would not be possible. But for taxpayers worried about their own pensions, this wealth transfer will be seen as inequitable. Defined benefit schemes do not offer a guaranteed income in retirement. They offer the promise of one – where that can be afforded. The Government was, at the ECB’s behest, compelled to repay even unsecured bondholders. It was not compelled to reward abject business failure by granting so many former AIB executives such generous pension payments.