When is a bonus not really a bonus? Bank of Ireland's innovative retention tools

A seemingly damning report into Bank of Ireland's deception over bonus payments demonstrates just how hard it's been working to retain key staff.

The perceived wisdom, in light of hiring and pay freezes over the past two years, is that working for domestic bank would be something of a short straw. International banks in Ireland, after all, continued to offer bonuses as well as greater job security during this period.

But a new report from the Department of Finance on whether Bank of Ireland deceived the government over bonus payments since coming under the state guarantee shows that, actually, rewards in domestic banks can be fairly generous - provided you don't call them bonuses.

BoI maintains that it hasn't been paying performance-related bonuses, and that the term is "open to different interpretations". Law firm Arthur Cox countered that BoI had used "a restrictive and uncommon interpretation of what constituted a performance bonus".

In fact, the majority of 'bonuses' it has awarded from 2008-2010 are what it calls 'contractual payments' - guaranteed bonuses, deferred bonuses, contractual guarantees and its long-term incentive programme - all of which amounted to over €30m.

Add in the €23.2m for 'commission type payments' and the €11.3m it spent retaining key staff and you can understand why the government felt the need to reprimand the bank over its assertion that no bonuses were being paid. It also shelled out around €900k on discretionary payments to those in businesses that were being wound down.

This helps also explain why there's been little evidence of an exodus from the bank and why, of all the Irish institutions to accept state support, BoI remains the most attractive to be employed by.

And the bank intends to continue to make these payments in 2011. 150 staff are set to receive €8m in guaranteed or contractual bonuses - or a healthy €53k each - and another €4m in retention payments will be shared among 100 employees. There's also another €10m earmarked for commission payments, which wouldn't normally fall under the bonus umbrella.

These will be subject to the 90% tax on bonuses introduced in the Finance Bill in January.

In reality, though, the whole thing is little more than a slap on the wrist for BoI, which has agreed to pay a €2m fine for "misleading the Minister and the Oireachtas about this matter", and unless it accepts more state aid it's likely to continue with these practices.

The report makes reference to the cancellation of €40m in deferred 2008 bonuses at AIB and says that at BoI: "the provision of further state funding should be conditional, inter alia, on the non-payment of any performance bonuses no matter when they have been earned".