Ireland to loosen strict cap on bankers’ pay and bonuses

The Irish government is loosening the strict caps on bankers’ pay and bonuses imposed after the financial crisis, as it dismantles a regime that lenders say has hurt their ability to attract and retain staff.

Finance minister Paschal Donohoe announced the steps, which were approved by the cabinet, after a year-long review of the retail banking sector that the government was forced to rescue more than a decade ago.

Under the proposals, banks will be allowed to pay bonuses of up to €20,000 as well as other benefits such as health insurance — which until now have been banned.

In addition to the bonus payments, Bank of Ireland, which was the first of the banks to return fully to private ownership this year, will no longer be subject to a €500,000 cap on executive pay.

AIB and Permanent TSB, rival lenders that are still majority state-owned following their rescue, will be allowed to abandon the pay cap once the state’s stake falls below a threshold to be set by the government. The state owns 57 per cent of AIB and 62.4 per cent of PTSB.

Donohoe declined to spell out that threshold, saying it would depend on market conditions and to do so now “could undermine flexibility”.

While he acknowledged the sensitivity of relaxing the rules for bankers during a cost of living crisis, he said it was vital to be able to recruit and retain staff, particularly since KBC and Ulster Bank are in the process of leaving the Irish market.

Half the workers at BoI, AIB and PTSB earn less than €50,000, he said.

“We are experiencing challenges in getting the right people into the three remaining banks,” he told a news conference. “One-third of those who leave these three banks indicate that pay is an issue and for those who leave, 40 to 45 per cent of them go to other employers who pay bonuses.”

BoI has been lobbying hard against the pay cap, although its new chief executive, Myles O’Grady, secured an exemption that allows him to be paid nearly €1mn.

BoI welcomed the move and said the first bonuses could be paid in 2024, based on 2023 performance. Neither the BoI, nor the other banks, had immediate comment on how many people could benefit or how much that would cost.

But Pearse Doherty, finance spokesman for Sinn Féin, which opinion polls suggest will lead the next government after elections due in early 2025, called the change “a kick in the teeth to struggling households”.

BoI was fined a record €100.5mn and AIB €96.7mn for refusing to give customers access to cheaper mortgages that tracked European Central Bank rates in an industry-wide scandal dating back almost two decades.

“[In] the year that has seen record fines issued to AIB and Bank of Ireland for their part in relation to the tracker mortgage scandal . . . that the parting gift of the minister for finance is to tell the senior executives in . . . all banks that there will be no pay cap restrictions into the future — I think it’s tone deaf to the scandal that we have seen,” Doherty told RTÉ Radio.

Donohoe is expected to become minister for public spending in a scheduled cabinet reshuffle on December 17.

The Banking & Payments Federation Ireland called the changes a “welcome step” and said banks had undergone “an unprecedented transformation” since their bailout.

“The retail banking sector is now presented with an opportunity to draw a line under old behaviours,” said the Irish Banking Culture Board, which was established by the high-street banks to improve banks’ trustworthiness.