Earlier this month, I reported that Fianna Fáil would be prepared to support the payment of a long-term bonus to the new chief executive of AIB to help secure the best candidate for the job.

It would come with strings attached, namely that the candidate would stay for at least five years and secure the repayment of most or all of the €20.8 billion in bailout funds that the bank has received.

He’s not advocating that the €500,000 cap on salary be lifted.

“I don’t subscribe to the view that bonuses are bad in all circumstances,” Fianna Fáil’s finance spokesman Michael McGrath told me, adding that it could be “good business for the State if AIB’s bailout funds are repaid”.

This is Fianna Fáil party policy and not just a solo run by McGrath. On the face of it, it’s an unusual position for an Opposition party to take when the public is still hostile to bonuses being paid to bank executives, especially as we are effectively on the run-in to a general election.

But it might be an attempt to put some clear blue water between them and Sinn Féin, which is advocating a third rate of tax for earnings above €100,000 and a wealth tax if it gets into government.

It also raises the question as to when and under what circumstances, bonuses might be paid to executives at the so-called covered institutions (those that received bailouts from taxpayers)?

Bank of Ireland last week published its annual report for 2014, showing that Richie Boucher had waived €118,000 of his €961,000 remuneration.

In financial circles, some eyebrows were raised as to why he had surrendered a large chunk of his earnings.

After all, Bank of Ireland is back in profit, has repaid its €4.7 billion in bailout money and the State’s residual shareholding is currently worth about €1.7 billion. It also agreed a pay deal with staff last year and the share price is at a four-year high.

His appearance at the Oireachtas Banking Inquiry in May might be one reason. He won’t want to give them another stick with which to beat him.

But at what point does the bank’s board decide it’s okay to incentivise its executives again, and not just Boucher?

Back in profit

McGrath’s plan has some merit, particularly in the case of AIB, which is back in profit and clearly on the road back to privatisation.

AIB owes the State €20.8 billion and is working towards an initial public offering at some point in the next 12 months, with about 25 per cent of the bank likely to be offered to the market. It is also likely to settle its bill with the State for its €3.5 billion in preference shares and €1.6 billion in contingent capital notes.

Goldman Sachs is busy on behalf of the State trying to draft a plan for all this to happen.

Under McGrath’s plan, the new chief executive of AIB would be offered some form of incentive that could be earned as various milestones are met in terms of the repayment of the State’s bailout cash.

This would not be a throwback to the Celtic Tiger days when executives were paid bonuses just for turning up to work and approving risky lending.

Incentive plan

AIB is in the market for a new chief executive so an incentive plan could easily be stitched into a new contract.

This might lead to calls for Jeremy Masding to receive a similar arrangement at Permanent TSB, which is also seeking to raise private capital and return funds to the State this year.

Masding’s case is slightly different in that he has made it clear that the State won’t get its full €2.7 billion back.

But a high bar could be set to ensure that we get a healthy return from the bank in the coming years.

The Government is probably not for turning on the bonus issue this side of an election. But it won’t always call the shots.

Private investors like their senior executives to have some skin in the game and this will inevitably lead to the payment of bonuses or the award of stock options to Irish bank directors in the not-too-distant future.

Would this be such a bad thing? Not if we get our money back first.