AIB chief suggests pay czar to set banker salaries

A PAY czar should be appointed by the Government to set banker salaries and financial incentives should be created to attract new blood to the troubled industry, according to the head of Allied Irish Bank.

Rates of interest for customer’s deposits should also be capped as Irish banks are already paying over the odds in a competitive market, argued the bank’s executive chairman David Hodgkinson.

Speaking at the MacGill Summer School in Donegal, the bank chief said a new code for banks and their responsibilities would also help the sector.

“The Government might also go one step further and appoint, in line with the USA model, a pay czar for the banks to avoid any of the pitfalls of the past.

“If Ireland was to do these things it would not be out of step with what is happening with banking internationally, including in countries that are ahead of us in reforming their banks. In the UK the treasury expects remuneration arrangements to be set in accordance with a code.”

He explained that in the US, a pay czar reviewed compensation packages of the top 100 earners at four banks.

Mr Hodgkinson is currently head of the bank as it searches for a new chief executive. The bank and financial regulator want a €500,000 cap on pay lifted to help attract fresh talent into the sector.

There were difficulties getting new senior bankers as many of those in Ireland had links to the mistakes of the past, attendees were told.

Several candidates were vying for the position of head of the bank but there were fears that the salary cap could scare them away.

Instead, Mr Hodgkinson suggested that the Government could sanction some type of financial incentive for new senior employees at the state-supported bank which could kick in down the line, once financial targets were met.

Mr Hodgkinson admitted that the culture of banking during the boom was wrong. He outlined difficulties facing the industry though, including the cost of meeting customer’s deposit interest rate costs.

“There is however, the negative spiral of Irish banks paying over the odds for deposits, only forcing up the market price and meaning borrowers have to pay more. This is in part because there are insufficient deposits in the domestic system to meet all the economy’s lending requirements.”

There was scope for state intervention to impose maximum deposit rates for a period, he suggested.

Allied Irish Bank has received over €20bn in taxpayers money to help repair its balance sheets. The bank chief pledged to restore trust with customers. He said that suggestions that Ireland should leave the euro were “dangerously naïve”.