Despite the expected moderation in high bonuses and salaries for PLC chief executives, criticism of the 'social scourge' of high executive pay is unlikely to go away, writes John Cradden

IT IS AN issue that the trade unions highlighted in support of their position during the failed talks on a national pay deal, but there may be signs that Irish PLCs are moderating "excessive" pay and remuneration for their most senior executives.

Brian Goggin, chief executive of Bank of Ireland, took a 25 per cent pay cut in the year to March 31st, 2008, which saw his annual earnings fall from almost €4 million to €3 million. His counterpart at AIB, Eugene Sheehy, was paid €2.1 million in 2007, a fall of €358,000, or 14 per cent, from the previous year.

Maurice Pratt, chief executive of CC, saw his pay cut by 30 per cent last year, with his total pay package worth €1.04 million for the year to the end of February 2008, compared with €1.48 million in the previous fiscal year.

Pratt did not get a performance-related annual bonus as CC's operating profit (before one-off items) plummeted 37 per cent, its employee numbers halved and its shares lost two-thirds of their value.

Goggin's performance bonus fell to €323,000 from €2 million, as the bank's earnings per share grew by 4 per cent compared with an increase of 22 per cent the previous year. Sheehy's bonus amounted to €850,000 in 2007 compared with €1,300,000 in 2006, as AIB's pretax profits fell 4 per cent to €2.5 billion in 2007.

What all of these executives have in common is that their performance-related bonuses are much reduced, or even eliminated, in line with falls in profits at their respective firms.

Most PLCs will not publish 2008 annual reports until later this year or early next, so it remains to be seen if pay for CEOs such as Liam O'Mahony of CRH, Michael Fingleton of Irish Nationwide and Dermot Mannion of Aer Lingus will start to reflect the more difficult economic climate.

Des McDermott, Ireland general manager of Hay Group, a management consultancy, says basic pay still increased for these top executives in 2007, but "in 2008, we will see pay freezes and, possibly, base salary reductions as well".

Already the signs are that companies are preparing for a less than bumper year for executive pay.

Ryanair's recently published annual report says chief executive Michael O'Leary got a pay increase for the year to March of just under 23 per cent on the previous year, but the report also states that as part of a company-wide pay freeze introduced for the current financial year, O'Leary will not receive any salary increase and his bonus will be "reduced".

There is no firm indication that curbs in executive pay here are being made in direct response to growing criticism of big pay packages, both here and in Europe.

In June, Jean-Claude Juncker, president of the European Commission's group of finance ministers, called excessive pay a "social scourge" and demanded action.

At home, the Ictu has called for tough tax measures, including terminating or reducing tax subsidies and capping executive pay by not allowing bonuses to exceed one-third to one-half of salary.

"There's no doubt that the CEOs of the larger PLCs are very well paid for what they do, but I think the levels of governance, decision-making and scrutiny of those pay packages has increased an awful lot," McDermott says.

"The quality of decision-making may not always be perfect and it may not always be absolutely transparent, but I've no doubt it has increased in quality in recent times."

Shareholders, particularly institutional investors, are more rigorous about seeking greater explanations of the link between pay and performance, he says.

A look at data on 2007 executive remuneration trends from HR consultancy Mercer shows that over the last two years, European companies have significantly increased their executive bonus levels to the point where they are surpassing those of companies in Britain.

"A greater proportion of executive pay is now based around annual bonuses and that's happening throughout Europe," says Patrick Richardson, principal consultant with Mercer.

"At the same time there's more focus on long-term incentives." There has also been a trend away from share options in favour of other pay mechanisms, he says.

Both Irish and European firms now benchmark pay against international peer groups in their own industries rather than against domestic rivals, Richardson says. "When examining their compensation philosophy, far more organisations are looking at a pan-European level than the country where they are based."

However, calls for limits on bonuses here are likely to go unheeded. "There are companies who pay unlimited bonuses, but I don't see the existing limits, which are well above 30-50 per cent of salary, being rolled back," says McDermott. "What will be rolled back will be the actual payout within those limits."

He adds that the benchmarking review body has recently seen fit to raise the bonus potential for CEOs in semi-state bodies to 35 per cent of base salary.

Despite the expected moderation in bonuses and salaries, criticism of high executive pay is unlikely to go away. But McDermott suggests that firms here might heed a recent example set by a certain Irish executive overseas.

British Airways recently posted record pretax profits of £883 million, meaning that CEO Willie Walsh was in line for a £700,000 bonus. However, thanks to the debacle of BA's move to Terminal Five at Heathrow airport, which resulted in the loss of 20,000 bags and 700 flight cancellations, Walsh and BA's executive remuneration committee mutually agreed that he would waive his bonus. He says that to accept it would have been "inappropriate ".

"The reputation of British Airways in 2008 was actually used to determine whether a bonus reflecting commercial performance in 2007 should be paid or not," says McDermott.