Top-level pay cuts as government secures banking system
The international financial crisis is putting pressure on the remuneration of top positions in Irish banks and at the higher echelons of the public sector. The Irish government’s budgetary shortfall is the reason for the focus on top-level salaries, with the minister for finance calling for pay moderation at ministerial and executive levels. New legislation, introduced in order to guarantee taxpayers’ deposits, requires the banks to comply with certain rules on remuneration policy.
Against the backdrop of the global financial crisis and a domestic budgetary shortfall, considerable attention has been focused on the level of top salaries. This applies, in particular, to executives in the main Irish banks, which are underpinned by taxpayer guarantees, and in respect of senior civil servants and politicians, who are aware of the public spending constraints on the government. Meanwhile, in mid November 2008, unionised workers formally agreed to a 6% pay rise over 21 months as part of the latest national pay agreement – known as the ‘transitional agreement’ (IE0810019I) – under the framework of the Towards 2016 (2.86Mb PDF) national social partnership framework.
Call for pay moderation at executive level
Under the transitional agreement, a special new clause has been introduced stating that employer bodies will encourage members to observe pay moderation at the top levels. The clause, which has been dubbed the ‘fat cat’ clause, states:
In the context of the changed economic circumstances and the acceptance by the social partners of the importance, in the national interest, of observation of pay moderation under the transitional agreement, employer bodies will, as a matter of policy, encourage their members to ensure that pay moderation is also observed in respect of executive pay.
This leaves it up to companies to decide whether their executives should be subject to pay restraint, as there can be no enforcement of such policies under Irish law or under its industrial relations system.
Voluntary pay cut for ministers and senior civil servants
At political level – and in the public sector – the situation is somewhat different. When announcing the government’s budget for 2009 on 14 October 2008, the Minister for Finance, Brian Lenihan, announced a temporary ‘voluntary’ 10% pay cut for government ministers as part of the budgetary cutbacks. Some other non-ministerial volunteers have agreed to follow suit, including the following: a number of secretary generals of government departments; the President of Ireland, Mary McAleese; the Governor of the Central Bank, John Hurley; and the Comptroller and Auditor General, John Buckley. In the commercial semi-state sector, three semi-state chief executives also agreed to voluntary reductions: the Chair of the semi-state transport company Córas Iompair Éireann (CIE), John Lynch; the Chair of the Planning Board (An Bord Pleanála), John O’Connor; and the Chief Executive of the Commission for Energy Regulation, Michael G. Tutty.
Prior to the announcement by Minister Lenihan, who is a member of the majority government party Fianna Fáil, the leader of Fine Gael, Enda Kenny, representing the main opposition party, had already volunteered to take a 5% pay cut. Some members of Mr Kenny’s own Fine Gael front bench followed his example, but others refused, citing personal financial reasons.
Government bank guarantee plan
On 2 October 2008, the Credit Institutions (Financial Support) Act 2008 was introduced in order to give effect to the government’s bank guarantee plan. Pursuant to the act, the Credit Institutions (Financial Support) Scheme 2008 (164Kb PDF) provides Irish taxpayers a guarantee of at least €400 billion to underpin deposits in the main banks. Under this scheme, Minister Lenihan is to establish an independent committee known as the Covered Institution Remuneration Oversight Committee (CIROC). The committee has the task of overseeing all remuneration plans of financial institutions covered under the scheme.
These measures, according to Mr Lenihan, will take the government ‘deep into the banking system’. Up to two directors, drawn from an approved panel and representing taxpayers’ interests, will be appointed to the boards of institutions covered by the scheme. The new remuneration committee will oversee the bonuses and pay of directors and executives. Bonuses will be linked to a reduction of risk and to the long-term sustainability of the banks.
Executive management remuneration
The new legislation stipulates that each institution covered by the guarantee shall prepare a plan to structure the remuneration packages of directors and executives in order to take account of the objectives of the act. Remuneration will include ‘total salary, bonuses, pension payments and any other benefits received from a covered institution and its group entities, or otherwise received by a director or executive arising from the performance of his or her functions as a director or executive’.
Each covered institution must submit a report to CIROC demonstrating how its remuneration policies will comply with these rules. If the minister considers that an institution has not complied with requirements, the covered institution may be instructed ‘to amend the remuneration plan so that compliance is achieved’.
In order to promote the public interest, ‘a covered institution shall, at the direction of the minister, take all reasonable steps to appoint at least one but no more than two non-executive directors to its board from a panel approved by the minister during the period of the guarantee.’
Brian Sheehan, IRN Publishing