Beware the bonus and salary caps

So, the government has received the long-awaited Covered Institutions Remuneration Oversight Committee (CIROC) report into executive pay and deemed the cuts proposed not deep enough. Instead, it wants salaries capped at €500k and board members are likely to see their fees shrink substantially.

The CIROC report wanted to ensure that "levels of remuneration should be sufficient to attract, retain and motivate directors" but "avoid paying more than is necessary for this purpose" at the six banks recapitalised by the government.

However, government has written to the banks, demanding executive pay be capped at €500k (or at the rate recommended by CIROC, whichever is lowest). This could lead to "mass exodus" of senior banking talent over the coming months, senior sources told the Irish Independent.

If the cuts seem harsh, it's worth noting that the CIROC report says pay soared from 2003-2004 and that bonuses "doubled approximately in the last ten years, influenced by similar growth in the UK".

New pay levels for chief executives recommended by CIRIC are:

Allied Irish Bank: €690k (down from €696.3k)

Bank of Ireland: €690k (down from €1.185m)

Irish Life & Permanent: €545k (down from €890k)

Anglo Irish Bank: €545k (no chief exec currently in place)

Educational Building Society: €360k (down from €441k)

Postbank: €230k (down from €260k)

The eagle-eyed among you won't have failed to notice that AIB's Eugene Sheey isn't exactly losing much. However, his base salary was €928.4k in April 2007, and the current figure is after pay cuts in October 2008 and again in February this year.

Finance minister Brian Lenihan is also calling for the scrapping of bonuses at executive level within the recapitalised banks, which is where the real pain will be felt. Some chief execs were paid a total of €3m in 2007, for instance.

Bonuses should be re-introduced, says the CIROC report, when the institution is no longer part of the government guarantee scheme, and even then should be no higher than 80% of base salary.

On the board, meanwhile, the CIROC report recommends that the chair be paid no more than 40% of the chief exec's base salary. Board members should only be paid the equivalent of 20% of the chair's fee.

The best paid chairs would therefore be in BoI and AIB - receiving €276k - with ordinary board members getting €55k.