Penny still hasn’t dropped

“A BIG change in banking culture” was what Finance Minister Brian Lenihan promised back in February 2009 when a major bailout was announced.

In exchange for a €7 billion capital injection and a €440bn guarantee, there would be an “Obama-style” cap on bankers’ pay, an “extensive clean out” of management in some cases and “immediate changes to remuneration”.

Mr Lenihan pledged: “Where changes are required, changes will be made.”

The impression has continuously been given that major changes have been made to who is in charge of banks and what they earn. But in reality, apart from some high-profile resignations, not a lot has changed.

Almost two-thirds of the people sitting in the boardrooms back in 2007, before guarantees, bailouts or NAMA came into existence, are still there.

While there is no question of unethical malpractice among board members, eight of the 12 who were on the board of Bank of Ireland before the guarantee or recapitalisation, and seven of the 16 who were on the board of AIB and “set the tone at the top” according to its 2007 annual report, are still there.

Both EBS and Irish Life and Permanent (ILP) still have more than half of the same directors they had back in 2007.

And in Irish Nationwide, which is expected to cost the taxpayer €3.2bn, not including the €9bn of toxic loans taken on through NAMA, three of the five members of the board from 2007 remain.

The two departures include Michael Fingleton, who earned a €1 million bonus weeks after the guarantee was announced, and his second-in-command, John Purcell who resigned earlier this summer.

The non-executive directors who stayed on in the banks, and their new colleagues who have since joined them, are doing quite well out of their positions, while taxpayers take on the burden of toxic loans and losses.

These non-executive directors have responsibility for supervision and oversight of decisions made by management at banks. They “establish the culture, philosophy and behaviour of the group towards risk and governance” according to AIB’s description.

They usually attend a monthly scheduled meeting and could end up going to 30 unscheduled or sub-committee meetings in the year, while holding directorships and positions in numerous other firms.

After the banks were covered by the Government guarantee, a report ordered by Mr Lenihan by the Covered Institutions Oversight Committee (CIROC) recommended levels of pay for both executive and non-executive directors.

The majority – 37 out of 44 non-executive board members in guaranteed institutions excluding Anglo – earned in excess of the payment recommended to the Government in that report last year.

The report, published in February 2009, said non-executive directors at Bank of Ireland and AIB should not earn more than €55,000.

In Bank of Ireland, the two Government-appointed public interest directors, Joe Walsh and Tom Considine, earned €79,000 and €90,000 respectively.

Others, who were there back in 2007, are still enjoying big fees. Former civil servant Paul Haran earned €67,000 in nine months, pointing to an annual €89,000; Jerome Kennedy earned €96,000 in the nine months to December 2009, which annualises to €128,000; Rose Hynes earned €81,000 or an annual fee of €108,000.

A spokesperson for Bank of Ireland said the board “decided to reduce fees for non-executive directors by 25%” and are “satisfied that we are in compliance with the subscription agreement” arranged following the Government’s capital injection.

In AIB, five out of seven non-executive directors earned in excess of the CIROC recommendations. David Pitchard, who joined in June 2007, got €151,000 last year; Ann Maher who joined at the start of 2007 earned €96,000 last year, while Stephen Kingon earned €109,000.

Public interest directors, Dick Spring and Declan Collier are the poor relations, earning €26,000 and €29,000 respectively, even though they also sit on sub-committees.

Directors’ fees at Irish Nationwide last year amounted to €403,000 compared with €246,000 the previous year. Chairman Danny Kitchen received €174,000, including €53,000 for acting as chief executive following Mr Fingleton’s departure. The Government-appointed directors on the Irish Nationwide board, Rory O’Ferrell and Adrian Kearns, each received €55,000 – well above the recommended €29,000.

An Irish Nationwide spokesperson said: “Fees in 2009 were paid at higher rates as the society board transitioned to new arrangements.”

In the EBS, not a single one of the 11 non-executive directors earned within the €29,000 recommended by CIROC – mostly earning around €37,000.

A spokesperson for EBS said the fees for 2009 were decided at the annual general meeting before CIROC came into effect and so could not be changed. But fees were agreed for this year which are compliant with the recommendations.

There’s a similar picture over in Irish Life and Permanent (ILP) where, again, not a single director was within the €44,000 limit recommended in CIROC.

A spokesperson said directors took a 25% reduction in fees last year which were “substantially down on previous years, albeit slightly ahead of CIROC recommendations.” He emphasised that ILP are “not participants in NAMA, have not received any state capitalisation and have taken substantial reductions in pay.”

Its annual report for last year said the level of basic pay was reduced by 25% to €56,350 in September – seven months after CIROC reported and still well above its guidelines.

The Department of Finance said ILP was given a “special dispensation” last year so “fees were slightly above what was recommended”.

Breffni Byrne’s annual fees added up to €103,000, Roy Keenan was paid €95,000 and Liam O’Reilly €78,000. Chairperson Gillian Bowler earned €200,000 – well within the €218,000 advised by Ciroc.

The report recommended fees of no more than €218,000 for the chairperson of Anglo Irish Bank – a position held by former Fine Gael leader, Alan Dukes. Mr Lenihan initially told the Dáil he would be approving a salary of €250,000 for Mr Dukes. Last year Mr Dukes drew down €102,000. He recently said he is taking home a salary of €150,000, saying a cut from the €250,000 offered by the Government was “the appropriate thing” to do.

Many banks have argued directors also sit on a number of sub-committees which entail extra work and additional fees. But the CIROC report said “no additional remuneration should be payable for membership of a sub-committee of a board.”

CHIEF EXECUTIVES:

While the banks’ chief executives did see their salaries cut, they were nothing close to “Obama-style” given that bankers in the US were subject to a $500,000 (€387,837) salary cap as part of their bailout deal.

CIROC recommended the salaries paid to the chief executives of AIB and Bank of Ireland be capped at €690,000 and the chief executives at Anglo Irish Bank and Irish Life Permanent be paid no more than €545,000 a year.

It recommended the chief executives of EBS and Irish Nationwide be paid an annual salary of €360,000.

Following its publication, Mr Lenihan wrote to the seven guaranteed institutions seeking a cap of €500,000 – far lower than what CIROC had called for. “We all have to set an example in these very difficult times for our country and it has to start at the top,” the minister said.

Bank of Ireland’s top brass, Richie Boucher, earns a salary of €623,000 plus an annual car allowance of €43,000. A pension top-up of €1.49m last year brought his total remuneration to €1.99m.

This is contrary to what is expressed in the CIROC report: “Pension arrangements for senior executives in each institution should, in our view, be at least broadly similar to those applicable to the generality of the staff of the institution.”

Over in AIB, Colm Doherty, was paid a salary of €622,000 last year but following a row between the bank and the Government about a breach of the pay cap, his basic pay was reduced to €500,000 when he took over the role of managing director in November.

The reduction is somewhat compensated for with a €18,000 increase in his benefits, now worth €66,000, and mostly accounted for by a company car allowance. When his pension contributions are factored in, his total remuneration package was €833,000 in 2009. A memo released through Freedom of Information (FoI) showed the minister or his officials had been proposing to cut the pay of Anglo chief executive Mike Aynsley to €394,000. But he later agreed to a salary cap of €500,000, in common with major banks.

ILP group chief executive Kevin Murphy earns a salary of €500,000 as well as €33,000 benefit-in-kind.

The huge remunerations still available to people in charge of banks are despite the estimated €50bn it will ultimately cost taxpayers to bail out the institutions.