Minister for Finance Michael McGrath is facing renewed demands to scrap the €500,000 pay cap at Allied Irish Banks (AIB), after the lender said private investors find the measure “untenable”.
As the Government resumes efforts this week to sell down its remaining 40.8 per cent stake in the bank to private shareholders, the Department of Finance released private files showing how AIB chairman Jim Pettigrew told the Minister the cap was “front of mind” in his meetings with investors.
“We have now reached a pivotal point where the group is in majority private ownership and we continually receive strong feedback from investors that these restrictions are untenable,” Mr Pettigrew said in a letter to Mr McGrath.
“We believe that without it being addressed, it will ultimately impact on the value of the State’s shareholding in the bank.”
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The bank, Ireland’s largest by market capitalisation, has long pressed for the removal of the cap because of concern that top executives may leave for better pay in lenders where such restrictions do not apply.
Still, Mr Pettigrew’s intervention goes further than before to seek action directly from the Minister.
The cap was imposed in 2009 as most of the banking system was nationalised after the financial crash, imposing huge costs on the State that led to an international bailout. The State’s controlling interest in AIB ended only last June when a share sale put private investors in a majority for the first time since its €20.8 billion taxpayer rescue.
Mr Pettigrew, AIB chairman since 2021, was formerly chairman of UK lenders Virgin Money and Clydesdale Bank. When the Minister met him in November, Mr McGrath said the cap was under consideration and “will be reviewed at the appropriate time”.
Although the Minister has not moved since then, Mr Pettigrew promised AIB “would operate in a responsible manner” while he was chairman if the cap was lifted.
Both the AIB board and private investors see the cap as a “material talent retention risk” that puts that bank at a “significant disadvantage” to competitors, the chairman said in his September letter to the Minister.
With elections this year, however, any move to ease bank pay restrictions could expose the Government to Opposition attack from parties who argue the cap should be retained because of the legacy of crisis.
A department briefing note for the Minister’s meeting with Mr Pettigrew said “the eventual removal of the remuneration restriction does not mean a return to the past” because pay governance had been strengthened.
There was no comment from AIB or the department on the files, released under the Freedom of Information Act after a request for correspondence with retail banks.
The files show the Permanent TSB chairwoman, Julie O’Neill, also questioned the cap when she met the Minister in November.
There were no records on Bank of Ireland, where a pay cap was scrapped in 2022 when it returned to full private ownership after part-nationalisation. Bank of Ireland chief executive Myles O’Grady is on a salary of €950,000.
The salary of AIB chief executive Colin Hunt is €500,000. On Tuesday the department extended its AIB share trading plan until July, continuing the process of selling down the Government stake that stood at 71.12 per cent two years ago.
Mr Pettigrew recognised AIB owed taxpayers “an immense debt of gratitude”, saying it was crucial to repay the taxpayer investment “in full” as soon as possible.
AIB has to date returned €13.6 billion to the State, leaving a €7.2 billion deficit from bailout costs. The State’s stake is valued at €4.26 billion.
The State retains 57.4 per cent of PTSB. In a briefing note for Mr McGrath before his meeting with Ms O’Neill, the department said she would raise PTSB board concerns in relation to pay caps.
“She will highlight the uneven playing field that is in place for PTSB in terms of attracting and retaining senior executives, when compared with Bank of Ireland.”
The meeting minutes said Mr McGrath and Ms O’Neill discussed “risks, including remuneration”. PTSB declined to comment.
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