Gloves off in Coilte's fight for bonuses
The fight was over a single point of principle. The board of Coillte believed it had a moral obligation to pay its former chief executive anything up to €390,000 in backdated annual bonuses.
But successive ministers, Brendan Smith and Simon Coveney, stood their ground. They said there was a clear policy not to pay performance awards.
The fight lasted for four years. At one stage, Coillte paid its then chief executive, David Gunning, €56,000 for his work in 2008. This was in direct contravention of a ministerial instruction.
Coillte told the minister the day after his Fianna Fáil-Green Party government collapsed. The final exchange of blows happened in March last year after Coillte defied Mr Coveney. It sanctioned the payment of an undisclosed amount that had been stopped during the recession.
The minister’s representative stepped in at the last minute to veto the decision. He claimed the remuneration committee, of which he is a member, had been misrepresented by the board. With four days to run on the chief executive’s contract, the Department referred it to the Attorney General and ordered Coillte not to pay out.
This final struggle was the result of four years of increasingly blunt exchanges. Ultimately, Mr Gunning left the company in Mar 2013 without his awards.
In October, he lodged a High Court case against the company in a bid to see his contract honoured. But this only happened after the board, and the now retired chairman Brendan McKenna, took bold and brazen steps to defy the ministers.
Coillte is largely sheltered from scrutiny as successive governments have excluded it from the Freedom of Information Act.
But releases from the Department of Agriculture and the Department of Public Expenditure have revealed the cheap shots and low blows that were thrown and landed right up until the week Mr Gunning left the company on Mar 19, 2013.
It began with polite exchanges in January. Anglo Irish Bank had just been nationalised but, contractually, Coillte had until the end of the month to decide on a 2008 bonus for its chief executive.
On Jan 23, the remuneration committee met and said Mr Gunning had reached his targets and was entitled to €56,000. The Department of Agriculture’s representative on the committee was not impressed.
Fianna Fáil agriculture minister Brendan Smith wrote to the board of Coillte and gently asked it to defer the decision until the economic situation stabilised.
He said while he accepted Mr Gunning might be entitled to a bonus, the company also had the right to cancel the awards scheme. He was specifically referring to a clause in his contract. It said that “[Coillte] reserves the right in its absolute discretion to terminate or amend the performance scheme”.
Mr Smith said it would be best if the payment was held until later that year. Coillte responded with a letter to the department, saying that while it would wait for definitive advice, it wanted to pay Mr Gunning soon.
“It would be grossly unfair... not to pay the bonus for which the chief executive is contractually entitled.”
Coillte went on the offensive. The minister’s representative on the remuneration committee at the time, assistant secretary general Denis Byrne, was invited to a meeting on Feb 23 to settle the dispute.
The two-and-a-half-hour meeting went through Mr Gunning’s work and scored him 20.5% out of a possible 25%. Mr Byrne said the bonus should not be paid but Coillte’s chairman, Mr McKenna, told him his legal advice was that the company had a duty to cough up.
Mr McKenna said Mr Byrne, who was one member of a four-person committee, had made his feelings known but it was for the committee as a whole to decide. “In my view our meeting concluded that a 20.5% bonus was merited by his performance in 2008 while it is clear from your letter of 4th February that you disagree with this position,” Mr McKenna said.
Coillte has relied on this meeting as having a binding effect which it could not back out of.
On Mar 3, Mr McKenna was summoned to a meeting with the minister and secretary general. He said it was up to the department to come up with a legal explanation for why the money could not be paid.
Coillte had introduced the legal argument in a bid to get the money to Mr Gunning. But in May 2009, Mr Smith, the minister, responded in kind. Citing government guidelines on chief executives’ contracts, he said the board was supposed to provide itself with enough flexibility to withdraw performance awards if there were “unforeseen major changes”.
Mr Smith said that while he accepted Coillte could be considered in breach of its contract with Mr Gunning, he was not for turning.
“I would wish to express a strong wish that the board of Coillte and the CEO carefully consider the public interest and cancel, withhold, or reduce the bonus payment at this juncture for 2008.”
The minister wrote to the company again, on Jun 23, 2009, but the chairman, Mr McKenna, said he did not receive it in time for the board meeting two days later. At that gathering, the board sanctioned the bonus, on the basis of February’s disputed remuneration committee recommendation.
In a letter back to Mr Smith, on Jun 30, Mr McKenna said his board did not want to adopt a legalistic approach but it had to.
He told Mr Smith that his board took this decision because it wanted “to ensure that we act legally and ethically in this as in all other matters that we have sought to deal with it in a principled and professional manner”.
“In this regard we are mindful of our obligations to you as shareholder and wider public interest considerations as well as our obligations to the chief executive as an employee under his contract of service,” he said.
By Jul 2009, Coillte had realised it was not winning the early rounds but still thought it could win the fight.
The board considered the minister’s updated demand that the bonus would not be paid but decided Mr Gunning would get it anyway.
As a compromise the board elected to defer the payment until circumstances improved and said Mr Gunning turned down a 2009 bonus.
The chairman confirmed all this in a letter to Mr Smith and said the timing of the eventual payment will “be at the discretion of the board”.
A copy of the letter Mr McKenna sent was read by Mr Smith and he penned a handwritten note at the bottom of the page. It left no doubt about his feelings: “The attitude of these people leaves a lot to be desired. I am not impressed to put it very mildly,” he wrote. The word “very” was underlined.
As the dispute dragged on, and Coillte was still insistent that Mr Gunning would eventually get his bonus, relations soured. The department kept the company on notice that it was not to do anything without approval.
On Oct 20, 2009, Mr Smith sent Mr McKenna a terse 40-word letter. The second, and last, line simply stated: “My views on this matter are abundantly clear to you and I would wish to be informed of any developments in this matter.”
Both parties dug in and, according to a more recent letter from Mr McKenna, the company grew increasingly frustrated with the refusal of the department to compromise.
The slow moving slugfest ended in Dec 2010. A month earlier the State had been bailed out by the IMF and the Greens had indicated that the government would fall as soon as the finance bill was passed. Mr Smith’s days as agriculture minister were numbered.
On Thursday, Dec 16, 2010, the remuneration committee of Coillte decided that in spite of all the turmoil, its chief executive’s bonus issue had dragged on for long enough. It wanted to meet to sign off on Mr Gunning’s award.
So it did just that and decided he would get the deferred €56,000.
The minister’s representative, assistant secretary general Kevin Smyth, was supposed to sit on this committee. And, if he was there, he would have protested.
Despite a meeting between Coillte and department officials taking place three days earlier, Mr Smyth was not told about the event. The committee met without him and agreed to pay the bonus.
Coillte argued it did not know Mr Smyth had been nominated as the new ministerial representative so it did not know to contact him. The department and Mr Smith did not buy it.
In a subsequent letter, Mr McKenna, the chairman, apologised but said he felt the absence of the minister’s representative did not have a material impact. “In relation to [the department’s] non-participation in the remuneration committee meeting on 16th December I apologise for not inviting your representative to the meeting,” he said.
Mr McKenna said he had tried to engage with Mr Smyth’s predecessor but was reluctant to talk about it given the department’s outright opposition.
On Jan 20, 2011, the Fianna Fáil-Green Party coalition collapsed in spectacular style as Brian Cowen tried to force through a botch cabinet reshuffle but instead was forced to call an election.
In seven weeks, there would be a change in government and a new agriculture minister. In the midst of the turmoil of Jan 21, Coillte’s chairman wrote to Mr Smith to update him on the bonus situation and break the news that it had ignored him.
“It was neither appropriate or tenable to continue to defer this payment further,” Mr McKenna said. He also mentioned it was not a sudden decision but was taken at a remuneration committee that had met on Dec 16.
This was news to the company’s shareholder, the Department of Agriculture. Having effectively stayed in its corner for the last round, news of Coillte’s decision to continue in its absence kicked off a frenzy in Agriculture House.
Kevin Smyth, and other senior officials, searched for any record of Coillte sending notice of the meeting.
An email circulated to senior staff by Dympna Furlong summed up its view: “Kevin, I have searched through my emails and folders to see if there was any reference to or flagging of meeting of remuneration committee on 16 Dec but have found nothing.
“Nor was there any reference to an intention to pay the 2008 bonus — we are equally annoyed by this and have found that while we can meet them as many times as we like, we are still dependant on them telling us important issues,” she said.
But the bonus had been paid. If Coillte was to lose the fight it would not be at Mr Gunning’s expense.
In the third week of January, the sides traded letters as a second remuneration committee meeting was scheduled for Jan 27.
The day before, Mr Smith, the minister, wrote to Mr McKenna, the chairman, to make it clear that he was deeply unhappy with Coillte’s decision. “You are fully aware of my position on the payment of bonuses to your chief executive which I gave you, in person, on a number of occasions and in writing in my letter of 23 June 2009.
“As we are both aware, there is no basis legally for me to, as minister, to insist that this bonus would not be paid but I am astonished that the remuneration committee and the board of Coillte could consider such a payment is appropriate,” he wrote.
He also asked for an explanation as to why the remuneration committee had kept his representative from the meeting.
On Jan 27, 2011, the company’s remuneration committee reconvened. The Department of Agriculture was in no mood to let the company off.
Before they got to the meat of the agenda, assistant secretary Mr Smyth insisted that two letters from the minister, including the one written a day earlier, be read into the record.
After reading these, Mr Smyth “reiterated Minister Smith’s complete surprise and disappointment that the 2008 bonus had been paid”. Mr Smyth then asked for an explanation as to why he was not invited to the remuneration committee meeting on Dec 16, 2010.
He said no records of that meeting were sent to him and he asked how a meeting could convene to discuss the chief executive’s 2010 bonus when no paperwork on his work that year had been circulated.
Mr Smyth said Coillte’s actions, in holding the meeting without him, were in direct contravention of guidelines for semi-state bodies.
But the chairman, Mr McKenna, said he had an obligation to implement the contract and the matter had been going on for months without resolution.
The chairman said he had acted “professionally, legally, and ethically at all times”. He said the legal considerations were paramount and it was not his job to take into account populist views.
Coillte director Yvonne Scannell said that despite the frustration of the minister, it would be “immoral not to pay” Mr Gunning. But Mr Smyth replied that “terms morality and indeed obscenity would be used when the public finds out that bonuses are being paid to a person on a €400,000 annual salary in a time of stringent austerity”.
He said the committee appeared to only see the issue in terms of internal legal issues and were devoid of wider implications.
Membership of the remuneration committee had fallen from four to two by Feb 2013. But Mr Gunning had turned down an offer of a contract extension and was due to leave the company on Mar 19.
Coillte organised a remuneration committee meeting to discuss the bonuses that were not considered for 2009 onwards.
But, in a letter to Agriculture Minister Simon Coveney on Feb 4, it said the chairman made a suggestion that the full board would consider the bonus issue without a ministerial representative.
“The board will also act as remuneration committee for this purpose as the chair is the only current member of this committee,” Mr McKenna said.
Dympna Furlong in the department wrote back to Coillte’s company secretary: “I am puzzled by this [statement], as you know, assistant secretary general Kevin Smyth is also a member of the remuneration committee. I understand he has not been formally advised of a forthcoming meeting.”
Ms Furlong sent this on Feb 25, 2013. She reiterated her view two days later.
Mr Smyth got his invitation at lunchtime on Feb 27 telling him of a meeting the next day at 9.30am.
The assistant secretary general said Coillte proposed to repeat its failure from Dec 2010, when it approved a bonus without telling him about the meeting.
Mr Smyth said the Feb 28 meeting had to be postponed as he had not even got an agenda.
The rearranged meeting of the two-person remuneration committee took place on Mar 5. Minutes of that meeting have not been released but Mr Smyth’s account of it afterwards suggests very different views between himself and Mr McKenna.
When Mr Smyth received a report of the meeting, he noticed that the chairman had been mandated to approve the payment of Mr Gunning’s bonuses.
Mr Smyth told the company secretary that the bonus payments had to be stopped and that legal advice of the Attorney General had been sought.
“I wish to advise you that, in line with standard practice, the remuneration committee meeting concluded upon my departure — there is no question of the chairman being mandated by the board to unilaterally authorise performance related payments in the absence of the minister’s representative.
“On this basis, your note at point 10 does not reflect a decision of the remuneration committee. There was no agreement by the two members of the remuneration committee for such a course of action as I had clearly stated the minister’s position in relation to the awarding of performance-related pay, namely that they should not be paid in the current economic circumstances to CEOs of commercial state companies,” he said.
Four days later, Mr Gunning left his post without his bonuses and six months later initiated a High Court action against his former employer.
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