Whisper it, but banning bonuses in Irish banks is not a smart idea
This might seem a slightly crass sentiment in the wake news of Ireland's new junk status and talk of a second bailout, but a wholesale ban on bonuses in domestic banks could be a bad move.
Banker bonuses are, to say the least, a sensitive subject in Ireland. You only had to witness the public fury over deferred bonus payments at AIB Capital Markets last year, or the vitriol spewed when Bank of Ireland admitted it had paid bonuses to some staff after accepting government funds in January.
For its part, the Irish government has moved to squeeze the life out of banks' appetite for bonus payments. It made AIB retract the €40m deferred bonus payments from 2008, has pushed through the 90% bonus tax and has now banned bonuses at Bank of Ireland for two years, except in cases where they reward "long-term value creation".
While this will appease the public, such broad brush moves could also cause "unintended consequences" when it comes to attracting and retaining staff, suggests Jon Terry, head of the reward and compensation practice at PricewaterhouseCoopers.
Firstly, he says, it could encourage banks to "significantly increase" base salaries, which is something they don't want to do in their current fragile state, and could actually be more expensive than the bonus payments. It also means that it's going to be a lot more difficult to attract the standard of people "required to get them out of the current situation", says Terry.
"It's all very well saying that if all banks in Ireland eliminate bonuses then bankers will have nowhere to go, but it's not as simple as that," he says. "Ireland has a mobile workforce, and they could simply look for a new position in the UK or elsewhere. Or there's a whole range of people - particularly middle management - who may simply decide they don't want the additional stress and pressure of working in banking with reduced rewards and leave the industry."
Financial services headhunters have told us that most bankers are looking for job security, rather than a lavish pay packet, but this could in part be down to a lack of other options.
If leaked plans for the creation of 10,000 new financial services jobs in the IFSC over the next five years come into fruition, this situation could change very quickly.
