IBOA chief rejects Regulator's call for lifting of banking bosses' salary cap

Issued : 26 July 2011

IBOA General Secretary, Larry Broderick, has rejected the suggestion from the Deputy Governor of the Central Bank, Matthew Elderfield, that the €500,000 a year salary cap on banking bosses' pay should be lifted in order to attract new blood into Irish banking. 

"The suggestion that the salary cap should now go after just a couple of years simply beggars belief.  At a time when the banking industry is still contracting and with the likelihood that a further 6,000 bank staff could lose their jobs in addition to thousands already lost since 2008 and when workers throughout the Irish economy are being asked to make major sacrifices in terms of jobs and living standards, it is simply untenable that Irish banking cannot recover unless its leaders are allowed to earn in excess of €500,000.

"The vacancy for a new Chief Executive in AIB, which has been advertised on the basis of the cap, appears to be attracting significant interest. So it is simply not true that we need to offer extravagant remuneration in order to attract good executives. After all, it is worth remembering that those who presided over the reckless lending policies which have virtually bankrupted the sector and the economy were all extremely well rewarded. So high pay rates do not always guarantee high quality performance."

"Furthermore we have already had five different sets of consultants investigating each bank's finances.  A range of consultants, including PWC and McKinsey, have also been engaged to work on the restructuring of the banking sector. The succession of highly paid consultants being employed in Irish banking is giving rise to a growing perception that no expense is spared at the top of the industry while those at the lower end of these institutions - who are likely to have to bear the brunt of any restructuring of the sector - are effectively ignored.

"The solution to the present challenges facing banking will not be found in breaching a guideline which already enables a Chief Executive to earn over 14 times the average annual salary for a frontline bank official. A real solution can only come through meaningful engagement with employees and their representatives in order to facilitate a restructured banking system which protects the maximum number of jobs and preserves staff terms and conditions of employment in order to ensure that service to customers rather than the pursuit of sales targets is the key priority.

"There is a case to be made for reviewing executive remuneration at this time. But rather than look to remove upper limits, it should focus on the overall value of the executive's contribution to the long-term success of the business rather than reward short-term gain at the expense of staff and customers. Incentivising short-termism was at the root of the crisis in banking. What we need are pay mechanisms that reward consistent performance over a number of years - based on the principles of sound prudential banking - rather than the pursuit of artificially engineered super-profits."

Responding to Mr. Elderfield's comments on the likely difficulty of pursuing those who were responsible for the collapse of Irish industry, Mr. Broderick said that the fact that this may be difficult should not be used as an excuse for not proceeding.

"It surprises me that in a country as notoriously litigious as the USA, the legal system has managed to bring Bernie Madoff to justice in a relatively prompt fashion without violating any of Mr. Madoff's rights to a fair hearing, whereas in Ireland there seems to a growing fear that no-one will ever be held responsible for the catastrophe which has not only devastated Irish banking but has also seriously damaged the Irish economy."

"Bank employees have a particular interest in seeing those who have brought their profession into such disrepute held to account for their reckless behaviour," he concluded.