(Bloomberg) -- Ireland will allow banks that were bailed out during the financial crisis to pay bonuses to staff and ease other pay restrictions for the first time since the financial crisis.
Following a review into the retail banking sector, the government will permit up to €20,000 ($20,657) of variable pay and lift a restriction on non-pay benefits, Finance Minister Paschal Donohoe told reporters in Dublin on Tuesday.
The state recently sold or scaled back its ownership of some of the banks it rescued during the financial crisis, when it also imposed pay restrictions and effectively banned bonuses. The government sold its remaining shares Bank of Ireland Group Plc in September and has reduced its holdings in AIB Group Plc.
Executive pay restrictions will be lifted entirely at Bank of Ireland while the €500,000 pay cap at AIB and Permanent TSB Group Holdings Plc will be removed once the government’s stake falls to “an appropriate level.”
“There is now really strong competition for workers for our banks, both here in Ireland in our domestic banking sector and also in the international finance services sector located here in Ireland,” Donohoe said. “Meanwhile the restrictions that are currently in place are causing challenges for staff recruitment and retention.”
Legal steps could be taken in “a number of weeks” in order to give effect to today’s decisions, he added. It will likely be one of the last major policy announcements from Donohoe, who will step down as finance minister in mid-December as part of the coalition government’s mid-point transition.
The government has so far reduced its stake in AIB to 57% from 71% via a share-trading plan it announced at the end of 2021. Taxpayers also own about 62% of Permanent TSB, according to Bloomberg data.
Donohoe declined to state what level a stake would be required for pay caps to be removed at the remaining banks or specify a time line saying they were “decisions for the future.”
Earlier: Ireland May Allow Banker Bonuses for First Time Since Crisis (1)
“These changes are important for two reasons” Patrick Kennedy, chairman of Bank of Ireland Group said in a statement. “Firstly, they will help us compete on a more level playing field, with both banking and non-banking employers, to attract and retain talent in our business. Secondly, reintroducing an element of variable pay will allow us to better link remuneration to the achievement of our long term strategic and commercial goals, and delivery for our customers.”
The move is likely to prove controversial in a country which is still scarred from a financial crisis that almost bankrupted the government a decade ago and now faces a cost of living crisis.
Opposition party Sinn Fein’s finance spokesperson Pearse Doherty earlier described the plans as “tone deaf,” noting recently issued fines to firms for a mortgage-tracker scandal which impacted accounts between 2004 and June this year.
Even so, it was welcomed by the country’s central bank, which had previously noted the potential benefit of more flexibility in pay for “staff performing essential roles in regulated firms,” a spokesperson said. “It is important that policy continues to be aligned to EU norms given Ireland is part of the banking union and the single market for financial services. Decision makers should consider carefully the medium to long-term implications of such interventions in a market economy.”
(Updates with details throughout and comments)
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