AIB agrees to €500,000 cap on salaries for executives

Allied Irish Banks (AIB) executive Colm Doherty has agreed to have his salary capped at €500,000 in his new role of managing director of the bank.

Taoiseach Brian Cowen  told the Dáil this morning Mr Doherty would take up his new position with “immediate effect” and that outgoing chief executive Eugene Sheehy would stand down at the end of the month.

The Government yesterday insisted it would not waive the €500,000 salary limit for top bankers after it emerged that Mr Doherty was to be appointed managing director of AIB with an expected salary of about €633,000.

The bank plans to appoint current chairman Dan O’Connor as executive chairman encompassing the two roles of chairman and chief executive to run the bank alongside Mr Doherty in the lower-ranking role of managing director.

Minister for Finance Brian Lenihan today welcomed the decision by Mr Doherty to accept a “substantial reduction” in his current salary, insisting the appointments at AIB would “engender confidence in the new bank management structures”.

In a statement, Mr Lenihan said: "The primary objective of the Government is to have a working banking system that will provide credit to businesses and consumers throughout the economy."

"To meet this objective we need effective management structures in each of our banks and I therefore welcome the Board and Executive appointments to Allied Irish Bank,” he said. He said the bank remains one of the largest banks in the State and it is in the best interests of employment in the economy that it has an effective management structure.

AIB said in a statement this morning the contract reflected Mr Doherty's personal commitment to the bank and its future. “His contractual remuneration package will therefore be considerably lower than applied in the past to the chief executive officer role, or indeed to Mr Doherty’s previous role in AIB, reflecting his personal commitment to the bank and its future,” it said.

The chairman of AIB’s remuneration committee Sean O'Driscoll said today Mr Doherty’s appointment had been made after a “comprehensive” recruitment process which had no preconceived notions as whether the job would be filled by an internal or external candidate.

Speaking on RTÉ's News At One, Mr O'Driscoll said the Government had indicated a "strong preference" for an outside candidate at the outset, but that it had not expressly forbidden the appointment of an internal person.

Asked why the bank had initially put forward proposals that were likely to bring in conflict with the Government, Mr O’Driscoll said: “The directors of AIB are not in the business of eyeballing the Government, or as one person said yesterday, giving one finger to the taxpayer and one finger to the Government.”

Asked if the €500,000 cap applied just to the salary or whether there were other means through bonuses or fringe benefits to augment annual pay, Mr O’Driscoll said: “There was an absolute undertaking by the institution that there would be no bonuses for a number of years and thereafter with the prior approval of Government”.

Despite the apparent climbdown by AIB over Mr Doherty's salary, the Government came in for strong criticism

today from Opposition parties who claimed “the banks were still calling the shots”.

Labour Party leader Eamon Gilmore criticised the bank's move to appoint an insider, saying it showed there had been “little or no change at the top boards of the banks”, despite assurances from the Government that “old guard” would be removed.

Fine Gael’s enterprise, trade and employment spokesman Leo Varadkar claimed the Government had abandoned its pledge to reform corporate culture by approving Mr Doherty’s appointment. “This isn’t regime change, it’s business as usual for the banks. Brian Lenihan is working for the banks, not for us," Mr Varadkar said. "The chief executivce and chairman will be the same person. This is corporate governance at its worst. The fat cats have won again."