Hopefully, Colin Hunt only subscribes to the digital edition of The Irish Times and worked from home last Friday, or better still was on holidays. If he wasn’t, then with luck someone binned the physical copy of the paper that is doubtlessly placed neatly folded on his desk in AIB every morning.
Page five of Business This Week is unlikely to have pleased him. Stripped across the top of the page was a graphic, complete with headshots, accompanying a fine piece by my colleague Joe Brennan on the salaries earned by the chief executives of Ireland’s listed companies.
Hunt, who took home the not insignificant sum of €610,000 last year was the fourth lowest earner, slightly ahead of Eamonn Crowley at PTSB who earned €600,000 and behind Margaret Sweeney, formerly CEO of Ires Reit, who earned €1.07 million. Tomás Ó Midheach, who used to be Hunt’s deputy at AIB, earned €1.08 million as chief executive of insurer FBD.
By the rules that apply in the parallel universe of executive remuneration this makes no sense. Following the departure of CRH, Flutter and Smurfit, AIB is now the fourth largest company listed in Dublin, with a market capitalisation touching €13 billion at the time of writing. Bank of Ireland has a market capitalisation of €10.6 billion and its boss Myles O’Grady earns €1.07 million.
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The difference is that AIB (and its domestic rival PTSB) is still subject to the cap on executive salaries that was one of the terms of the €64 billion bailout of local banks by the taxpayer in 2008. The State sold the last of its shares in Bank of Ireland in November 2022 and the pay cap was lifted, although a cap of €20,000 on bonuses remains. The State still owns 25.5 per cent of AIB and just more than 57 per cent of PTSB.
Efforts to have the cap lifted at AIB on the basis that the bank needs to be able to pay the market rate if it wants to attract and retain top caliber management have been resisted by successive Governments whose members still bear the scars of the public outrage at the banking collapse.
Jack Chambers, the newly appointed Minister for Finance, would have been doing his Leaving Cert when the banks were bailed out and presumably does not carry the same baggage as his predecessors. But if the briefing note prepared for him in advance of his assuming office last month is anything to go by the status quo will pertain.
It states that “The Minister for Finance is acutely aware of the risks posed for AIB and PTSB surrounding the ongoing implementation of the compensation cap”. But this is about as far as it goes.
There is one chink of light which is that the briefing document states that the AIB share trading plan under which the State is slowly divesting of its stake “will now end no later than July 23rd, 2024, unless further extended by me [the Minister]”. July 23rd has come and gone and there has been no announcement.
A new plan would offer Chambers the opportunity – if he is so minded – to decouple the sale of the Government’s stake from the issue of executive remuneration, and there are good reasons to consider doing so.
The exchequer is awash with money and AIB is one of the best performing assets the Government has. Its shares are up 37.37 per cent so far this year, valuing the Government stake at about €4 billion. But that’s not the real reason.
The question for Chambers to consider is whether the current arrangement, which creates an imperative for Hunt and his team to sell down the Government stake as quickly as possible is still in the best interests of the exchequer and the bank’s customers.
One of the many criticisms levelled at banks both here and abroad after the crash in 2008 was that the relentless focus by management on the share price – and by extension their own share options – contributed to various missteps.
That is not to say that Hunt and his team are about to do something stupid in order to hurry up the State’s exit but the bumper profits that are driving the share price and leading Hunt to tell the FT in April that a total Government exit in 2025 is “certainly within the bounds of possibility” have to be made at someone’s expense.
Right now, that someone is the 3.2 million customers of the bank, which along with Bank of Ireland has a virtual duopoly in the provision of banking services here. They would probably prefer Chambers to use the taxpayer’s stake to drive more competition in the banking market rather than stick another €4 billion into a rainy day fund.
It would be sensible to consider decoupling management pay from the Government shareholding at this point but whether it would be politically palatable is another question.
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