Bonus ban has limited ability to make senior hires - BoI chief

Francesca McDonagh: difficult to convince senior outsiders ‘to take a leap of faith’

Bank of Ireland chief executive Francesca McDonagh noted that banks that have not been rescued by the State are not subject to the same pay restrictions. Photograph:  Joanne O’Brien

Bank of Ireland chief executive Francesca McDonagh noted that banks that have not been rescued by the State are not subject to the same pay restrictions. Photograph: Joanne O’Brien

 

Bank of Ireland chief executive Francesca McDonagh has said pay caps and bonus bans across bailed-out lenders have curbed her ability to make senior hires, leaving an element of risk with her new strategy plan unveiled this week.

In an interview with The Irish Times in London after outlining her vision to investors on Wednesday to increase the group’s loan book by 20 per cent, cut €200 million of costs and boost profitability over the next four years, Ms McDonagh said the restrictions have made it more difficult to convince senior outside candidates “to take a leap of faith”.

“Talk about bankers’ pay is always a sensitive issue, but the reality is that if someone is paid more than you can offer them, it’s very difficult to get them to come and work for you,” Ms McDonagh said, noting that Irish banks operating in that haven’t been rescued by the State are not subject to the same restrictions.

Exception

The Government has limited bankers’ salaries to €500,000 and banned bonuses, although Ms McDonagh was granted an exception when she was hired last year.

While Ms McDonagh, chief executive since October, said her new plan, which also involves spending €1.4 billion on an information technology overhaul and restructuring, “is achievable”, she added: “I think there is more risk when you are not competitive in terms of how you pay in an industry where banks in Ireland and the UK pay in a different way.”

Still, Ms McDonagh has been able to hire a chief of staff, a new head of the IT project, and chief marketing director under the limits.

Hire consultants

Minister for Finance Paschal Donohoe is preparing to hire consultants in the coming months to review pay restrictions introduced in 2009 after the State guaranteed the sector. He used his 71 per cent stake in AIB to vote against a resolution at its agm in April that would have allowed that bank to establish a deferred shares incentive scheme, starting in 2019.

However, Mr Donohoe abstained from using his 14 per cent Bank of Ireland stake to vote on a remuneration resolution at its agm the same month, giving the group the imprimatur to engage with major shareholders this year on the possibility of setting up “an appropriate incentive scheme” for executives from next year.

Any such plan would still need the Minister’s approval and removal of a prohibitive 89 per cent tax on bonuses.