Is it time to remove the Irish bank remuneration cap?

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When a senior Irish banker working abroad was considering returning home, he encountered an insurmountable hurdle: his salary.

“There was an opportunity that I considered quite carefully,” he said, asking not to be named. But he should have accepted a “very severe” pay cut and “that’s one of the reasons I turned it down.”

Since the biggest bank bailout in the eurozone more than a decade ago, Ireland’s three big banks have been forced by law to cap top executive salaries at € 500,000. Furthermore, the rules prevent some 23,000 employees, from the most junior to the most senior, from obtaining bonuses or other benefits, including health insurance and childcare.

Well-paid bankers lamenting that they can only earn half a million euros a year may not generate much sympathy among workers who have lost their jobs during the Covid-19 pandemic.

But the Irish banking sector body said the problems caused by one of the EU’s most restrictive pay regimes were ‘more acute than ever’, in middle-level jobs as well as in senior management, and would hamper the ability of AIB, Bank of Ireland and the permanent TSB to innovate and ultimately serve the government which still has significant holdings.

“This is one of the most important pressure points to attract talent,” said Brian Hayes, Managing Director of the Banking and Payments Federation Ireland. published a report with EY highlighting this as a major issue. “It’s like a brain drain, it puts enormous pressure on the [banking] model.”

Within the industry, however, the message is clear: shop.

Myles O’Brien, Chief Financial Officer of BoI, became the latest to do so this week. The announcement of his upcoming departure for Musgrave Group, which owns 11 brands including supermarket giant SuperValu, comes two years after his predecessor, Andrew Keating, left for construction products company CRH.

Crunch the numbers and it’s easy to see why. Keating does € 468,000 in his last year at the bank before becoming CFO of the CRH group. The financial director of this company won $ 3.2 million Last year. O’Brien’s new salary was not known, but industry insiders said it was a safe bet he would earn more than the € 531,000 he earned including pension. Last year.

“I have just placed a financial director on 1.5 M € and a human resources manager on 1 M €”, specifies a headhunter, specifying that the latter had started in the bank.

Not all are completely abandoning the bank. Some are drawn to better paying foreign financial institutions, which are not subject to the same restrictions, which BoI chief executive Francesca McDonagh said puts domestic banks at a disadvantage.

Exceptions have been made in the past, such as for McDonagh herself when she joined HSBC’s BoI in 2017, but people familiar with the process say they are rare and involve convincing the Irish Department of Finance that you have traveled the world looking for alternative options. This is partly why, according to the European banking authority, Ireland had only 34 bankers, among Irish and international lenders, who paid more than a million euros in 2019, compared to 3,519 in the UK.

Indeed, in 2018, when AIB’s CFO and CEO resigned less than two months apart – the first to a Portuguese lender, the second to a major stockbroker in Ireland – President Richard Pym complained that his bank had become a “training ground for competitors ”.

“If you tell an COO of AIB or Bank of Ireland that they can earn twice as much as the COO of a foreign bank in Dublin, that’s where you lose people.” , said the senior banker.

For recruiters looking for high-profile bosses to replace departing executives, wage restrictions, in addition to rigorous central bank suitability and probity assessments potentially involving months of forensic examination, may mean a shrinking and not very diverse basin.

“Customers are really picky about what they want, but it can be like looking for Formula 1 drivers in a parking lot full of skateboards,” said the senior headhunter, who called the wage restrictions “ complete and total barrier “in the industry.

According to Hayes, the problem isn’t just at the top, but also in the middle ranks and among graduates, many of whom are transferring to other financial services employers. Ireland is not only home to big American tech companies like Amazon, Apple and Google, but also fintechs like Stripe.

Hayes said the policy could backfire: the government still owns 12 percent of BoI, 71 percent of AIB and 75 percent of PTSB, so staying competitive maximizes state investment. “The future viability, performance and health of banks really depends on their ability to make investments and hire skills,” he said.

Indeed, according to the BPFI and EY report, a fifth of hires at the three retail banks over the past three years have been in technology and digitization, with traditional banks striving to keep pace with their more nimble fintech peers. .

This trend is expected to continue, but whatever the imperatives of the sector, the government is unlikely to have its arm twisted.

“[Bank bosses] run glorified credit unions, what do they expect to be paid? A former official shrugged, referring to local savings and loan alliances.

And with the left-wing nationalist Sinn Féin party leading voters’ votes for the Irish elections slated for 2025, senior leaders see little change on the horizon.

“It will soon get worse if Sinn Féin comes in,” said the headhunter. “They’ll care even less.

Additional reporting by Laura Noonan in London


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