AIB plans to cut the pay of executives and senior managers, freeze staff salaries and reduce pension costs, it emerged today.

The bank, which needed a €20.7 billion State bailout, will reduce executive committee members' salaries and pay-related allowances by 15 per cent starting in August, with other executives facing a cut of up to 10 per cent and senior managers a cut of up to 7.5 per cent, chief executive David Duffy said in an email to staff today.

"AIB's cost-to-income ratio in 2011 was 96.2 per cent and, as you will all be aware, this level of cost is unsustainable in the current economic environment," wrote Mr Duffy, who became chief executive in December, with a €500,000 a-year cap on his salary.

"It is imperative that the cost base of the bank is sufficiently aligned with the overall operating performance to attract external investors.

"With regard to all other staff, we are engaged in discussions with unions on a proposal for a potential general pay freeze until end-2014," Mr Duffy said.

He also said he intends to move all employees onto defined-contribution pension plans, where retirement benefits are linked to the performance of funds, from defined-benefit and hybrid plans, where payments are linked to final pay levels.

The  bank, which is 99.8 per cent State-owned, announced plans in March to cut 2,500 jobs. AIB expects a large proportion of the redundancies to be secured through early retirement. The payout terms are also on offer to staff at AIB's subsidiary, EBS.

AIB has 12,500 staff in the Republic and 2,500 staff in Northern Ireland and Britain. It  has yet to identify where exactly the jobs will go.

AIB has lost an estimated €28.1 billion on bad loans since 2008. The figures include loan-impairment charges and losses on divestments such as the sale of real estate assets to the National Asset Management Agency.

Mr Duffy said on March 30th, as AIB reported its full-year net loss narrowed to €2.29 billion from €10.2 billion in 2011, that he hopes to attract investors back to the bank next year to start repaying some of its rescue costs.

Siptu, which represents service and auxiliary staff at AIB, said it would resist any attempt to enforce unilateral changes to staff pension schemes. The union's insurance and finance sector organiser Adrian Kane said today's announcement marks a "serious deterioration" in the relationship between staff and management.

"A cynical observer might conclude that the timing of David Duffy's announcement in relation to his employees' pension schemes might be intended to persuade some to opt for the voluntary redundancy option," said Mr Kane.