Effort to introduce bankers' salary cap proceeding

THE DEPARTMENT of Finance is proceeding with efforts to introduce the Government cap on bankers’ salaries despite resistance from senior managers.

It’s understood that some banks have obtained legal opinion that while the Government can instruct the banks to set lower salaries, the banks cannot overrule existing employment contracts by setting a lower cap on senior bankers’ pay.

The banks have also received legal advice that the Government may not be able to encourage the banks to accept lower pay levels as this would in effect undermine their employment contracts.

The pay limits are affecting long-serving bankers in particular who are resisting the caps as their pensions are determined by their final annual salaries when they retire.

Despite tensions among senior staff over the Government’s salary caps, the institutions are in negotiations with employees to encourage them to accept the lower pay set by the Government’s bank remuneration committee and the Minister for Finance.

The Covered Institution Remuneration Oversight Committee (Ciroc) recommended pay cuts of between 27 per cent and 64 per cent for the chief executives of the guaranteed financial institutions.

Ciroc recommended a salary of €690,000 for the chief executives of Allied Irish Banks (AIB) and Bank of Ireland, and €545,000 for the chief executives of Anglo Irish Bank and Irish Life Permanent. A decreasing pay scale was recommended for staff below that level.

Minister Brian Lenihan overruled Ciroc’s recommendation for the four banks, setting a pay cap of €500,000 for chief executives.

A Department of Finance spokesman said: “A number of issues are being worked through with the banks in the spirit of co-operation and we are confident the salary cap will be imposed.”

The recommended salary limit of €360,000 for the chief executive of Irish Nationwide led to one candidate, Danny Kitchen, a non-executive director of the building society, declining the position.

Anglo Irish and Irish Life & Permanent are searching for chief executives and the reduced salary will pose problems for both banks in their search for candidates.

Meanwhile, Mr Lenihan is expected to announce the Government’s intention to create a State asset management agency – a type of bad bank – in his budget today.

However, full details of how the agency will be set up and managed by the State will be outlined in further briefings later this week.

Mr Lenihan said yesterday evening that the banking sector could not be reformed until bad loans to property developers were removed from the banks and financial institutions were “cleaned up”.

The Government is expected to press for the transfer of between €60 billion and €80 billion in property loans from the banks to the agency, which will be run by the State’s money manager, National Treasury Management Agency.

The loans will include €56 billion in residential and commercial property development loans in addition to other loans secured on completed properties, including offices, shops, and hotels, owned by the borrowers which were provided as security for the loans.

Bank shares climbed yesterday in anticipation of a Government announcement to remove problem loans from the banks.

AIB rose almost 15 per cent, while Bank of Ireland climbed 9 per cent.

AIB will hold its extraordinary general meeting to approve the Government’s €3.5 billion recapitalisation plan on the morning of May 13th and its annual general meeting in the afternoon.

If the recapitalisation is passed, the Government will be able to appoint an additional two directors to the bank under the terms of the plan.

However, the Government can wait to co-opt the directors onto the board at a later date.