Bank of Ireland to award top executives shares despite bonus restrictions

Bank of Ireland is planning to grant its chief executive and chief financial officer shares of up to 50 per cent of their salaries in the coming years, hiking their remuneration as it seeks to get around ongoing bonus restrictions across bailed-out Irish banks.

The bank said in its annual report, published this week, that the so-called fixed share awards are “not subject to any performance conditions”, leaving them outside the scope of an effective continuing ban on performance-related bonuses above €20,000 enshrined in the Finance Act 2011 after taxpayers were forced to rescue the nation’s banks.

The Government moved in December to lift a crisis-era €500,000 limit on executive fixed pay at Bank of Ireland, months after it sold its remaining shares in the bank. It also allowed for a return of bonuses of up to €20,000 across the sector, but any performance-related pay above that level remains subject to a prohibitive 89 per cent levy.

[ AIB ups dividend and share buyback programme as profits rise 19% ]

The chairman of Bank of Ireland’s remuneration committee, Steve Pateman, warned in the annual report that the bonus cap “causes significant risk” for the recruitment and retention of staff. The group is currently seeking to hire chief executives for both its Irish retail and UK divisions.

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Bank of Ireland’s chief executive Myles O’Grady was hired four months ago on a fixed salary of €960,000 before the limit was scrapped. Successive ministers for finance had allowed the bank to pay its top executive more than those in the other banks as it had avoided falling under State control during the financial crisis.

The bank said in its annual report that it has decided to increase the basic salary of its chief financial officer Mark Spain by 10 per cent to €550,000.

Under the new fixed share awards plan, no stock award will be made this year to the CEO and CFO. However, an “allowance” of 25 per cent of salary will be granted in 2024, rising to 50 per cent from 2025 onwards.

“The use of a FSA [fixed share award] allows for direct shareholder alignment through awards made in equity, with circa 30 per cent of total compensation provided in equity,” the annual report said on the rationale for the scheme. “Allowances are delivered over a multiyear period aligning to longer-term shareholder interests.”

The stock award terms target total CEO remuneration at the bank “below the lower quartile of the UK mid-tier banks peer group and between the lower quartile and median of the ISEQ-15 peer group”, it said.

The top executives will not be allowed to sell any shares awarded under the scheme until they build up a stake equivalent of 100 per cent of their salary. This minimum threshold of ownership must be kept as long as they are employees of Bank of Ireland. In the event that the executives leave the bank, they must also maintain shares at the minimum level for two years.

“The board’s remuneration committee reviewed elements of the existing remuneration policy to ensure that it is fit for purpose as well as considering market trends on best practice,” a spokesman for the bank told The Irish Times.

The development comes weeks after Bank of Ireland said it would introduce a staff bonus scheme next year based on the performance of the company and individuals, with maximum awards set at 10 per cent of an employee’s salary, and capped at €20,000.

Bank of Ireland is the first of the three remaining domestic banks to outline its plans after the Government eased pay restrictions across the sector.