Irish banks' new pay quandary
With new EU rules on banker pay coming in to play next year, Irish banks could potentially raise base salaries in order to compensate for reduced bonuses, or risk losing key staff in profitable business areas to competitors overseas.
Irish banks have been a little tardy when it comes to tightening up pay practices. As a scathing report from the Central Bank of Ireland this month showed, signing on bonuses, guarantees and golden parachutes were still commonplace.
The Central Bank is shortly to release its draft remuneration code, which will draw on the recommendations of the Committee of European Banking Supervisors (CEBS).
Now, the CEBS bonus rules are complex (our UK site offers a helpful summary on the finalised report here), but fundamentally they require deferrals, stock payments over cash and a crackdown on guarantees.
The Irish government has forced AIB to rescind its €40m deferred 2008 bonuses and is set to impose a 90% super-tax on future payments within banks under the guarantee. Clearly, in Ireland, banker pay is both a political hot potato and a source of bubbling public anger.
"In order to be compliant, the Irish government or financial regulator needs to bring forth some final regulation that takes into account the CEBS guidance," says Jon Terry, remuneration partner at PricewaterhouseCoopers. "They might decide to make an exception in this regard, but this would be something of a red rag to a bull."
The CEBS guidelines have been on the table since October and, in the UK at least, also follow recommendations from local regulators. Therefore, most investment banks in the City have raised base salaries this year - some times three or four times higher than 18 months ago - in a bid to remain competitive globally when it comes to pay.
"If Irish banks want to keep the total compensation for certain key individuals at the same level, but outside of the guides, then increasing salaries is an option," says Terry. "They need to take account of the political dimensions of that, but if these people work in an international marketplace there's a need to remain competitive over compensation. I wouldn't rule out a salary rise."
In reality, as long as it has control of the purse strings, the Irish government is unlikely to risk the wrath of the public in order to keep hold of key people in capital markets and other profitable divisions of the domestic banks.
Therefore, Irish banks face the distinct possibility of this talent hopping on plane to London or Asia.
