Irish banks WILL have to tighten up pay practices, and big bonuses are only for the select few
For most staff working in Irish banks, bonuses seem like a distant memory. But, according to a scathing new report from the Central Bank, banks are still offering signing on bonuses, guarantees and golden parachutes.
The Central Bank's report was attempting to shed some light on whether the pay practices employed by Irish banks in the early 2000s, which encouraged risk taking and lax risk management, were still in place.
The findings, according to Jonathan McMahon, head of financial institutions supervision at the Central Bank of Ireland, were "discouraging".
As well as still offering guarantees and golden parachutes - largely to executive level staff - the majority of banks still have little clarity over pay practices, nor are they tying them to the long-term performance of the organisation, suggested the report.
"If a bank is not employing the right financial incentives, it is not managing its risks - it's as simple as that," said McMahon.
It's easy to see why most Irish banks would be reluctant to take guarantees off the table for big hitters. Most international banks have raised base salaries in anticipation of a regulatory crackdown on bonuses, while Irish institutions have self-imposed pay freezes.
By removing the bonus carrot, it's going to be very hard for Irish banks to attract senior talent.
More to the point, though, most of the banks have failed to take account of punitive new European regulations around the payment of bonuses, which are due to be implemented in January next year.
McMahon said that the Central Bank would "shortly be issuing a draft statutory Code on Remuneration Practices for Credit Institutions based on the requirements of CRD III and drawing from the work of CEBS."
These rules are largely focused on deferring bonus payments over a number of years. The CEBS recommendations state that some people will have anything from 40-60% of their bonus deferred over three years. Of the remaining 'non-deferred element,' only 50% will be immediately accessible. As a result, some people (especially high earners) will only get 20% of their overall bonus as readily available cash in 2010.
Still, the prospect of any sort of bonus seems a little fantastical for the majority of rank and file staff. If banks are paying them at all, they're on an entirely discretionary basis, no doubt to avoid any sort of future legal battles over contractual obligations.
"Any clampdown on bonuses will inevitably sit well with the Irish public, but the fact remains that most banking employees will get nothing, many have seen base salaries shrink by as much as 15%, and people are taking short-term contracts to secure any sort of pay rise," says one financial services headhunter.
