AIB management pay - Cap should apply to all bank staff

Last February Minister for Finance Brian Lenihan announced a cap on the salaries of bank chief executives under the bank recapitalisation scheme, which ultimately saw the state take 25% stakes in the banks in return for a capital investment of €3.5 billion. It would seem this proposal was not thought out properly.

The salary of the chief executive was to be capped at €500,000 while officials working under him could be earning more. The absurdity of the situation became apparent with the appointment of Colm Doherty from within Allied Irish Banks where he earned €630,000 last year.

The Government had indicated that it did not want an internal appointment from within AIB, but after a trawl of external and internal candidates, the board of the bank decided that Mr Doherty was the best candidate for the position. It was suggested that external candidates had turned down the job because the salary was capped at €500,000.

This should hardly be surprising, when the person appointed in such circumstances would be coming in as an outsider and would have people working under him, or her, who would be earning more. Initially AIB apparently hoped that Mr Doherty could retain last year’s salary of €630,000, but this was reportedly leaked into the public domain before it was discussed with the minister for finance.

The resulting public outrage at the disclosure apparently killed the idea. Yesterday Taoiseach Brian Cowen announced that Mr Doherty has accepted the new position as managing director of AIB at the capped salary of €500,000 a year. Thus he has agreed to take a cut while officials working under him can still earn higher salaries. This is absurd.

This story has aspects of a charade. AIB has essentially forced the Government to back down. As a face-saving compromise, the bank’s chairman, Dan O’Connor, will assume management responsibilities as executive chairman working alongside Mr Doherty. AIB has also agreed that Michael Somers, the retiring chief executive of the National Treasury Management Agency, will be appointed deputy chairman of the bank.

Cynics will undoubtedly argue that this is largely a matter of optics. Whether the chief executive is being paid €630,000 or €500,000 is not going to make that much difference when the state is propping up the bank with billions. But it is grossly misleading to suggest that runaway practices of remuneration are being controlled simply because the salary of the chief executive is capped, while other employees in the bank are allowed to earn more.

The system of remuneration must be transparent. During the height of the Celtic Tiger, exorbitant bonuses were paid in some instances to people who engaged in reckless practices. As a result the whole system has been seriously undermined.

There has to be major reform rather than superficial cosmetic changes that might be interpreted as merely an attempt to lull the public into a false sense of security.

Surely the cap should apply to all bank employees.