Why do bankers feel entitled to huge pay?

By David Murphy, Business Editor @davidmurphyRTE

It is no surprise the enormous salaries and pensions paid to bankers continue to make people deeply uncomfortable. Citizens who still have jobs are paying higher taxes, services are being cut, while many others can’t get work.

The taxpayer was forced to hand over €64 billion to clean up the mess left behind by the bankers. Sleepy regulators and politicians who were cheer-leading during the craziness didn’t help either.

So why do bankers feel entitled to huge pay? A distinction needs to be made between executives who were in critical leadership positions during the boom and those who were hired subsequently for the clean-up.

The only bank CEO in place now, who held a significant role during the credit bubble, was Bank of Ireland’s Richie Boucher. IBRC’s Mike Anysley, AIB’s David Duffy and Permanent TSB’s Jeremy Masding all worked abroad.

Mr Boucher’s total package, which includes his pension, is €831,000. A lot of attention has been given to the salaries of CEOs. But the disclosure to Sinn Fein that 24 individuals in Bank of Ireland are on salaries above €400,000 per annum is startling. Figures show that only two people in AIB will have salaries over €400,000 by the end of the year. Anger has also been expressed about salaries at IBRC, which encompasses Anglo and Irish Nationwide, where seven executives have total packages including pensions of more than €500,000.

So why are there so many more people in Bank of Ireland on higher salaries than in AIB? One reason is that AIB has introduced pay cuts for senior staff. It is also worth bearing in mind that the lender cost the taxpayer €20 billion, while at Bank of Ireland the bill was €4.8 billion. But there is an issue of transparency. Surely taxpayers have a right to know this information. Why does it require a question in the Dáil by a TD before it is disclosed?

However, politicians shouldn’t jump to the conclusion that a well-paid executive is automatically an over-paid executive. Original estimates for the cost of Anglo Irish Bank were between €29 billion and €34 billion. Mike Aynsley now says the bill is more likely to be €25 billion. If that reduction is due to good decisions by executives, arguably they might be worth it. But politicians and taxpayers really have no way of knowing.

Many people seem amazed by the scale of bankers’ salaries. But in the world of the boardroom, senior executives generally compare themselves to other senior executives. CRH’s chief executive Myles Lee had a total package, including pension contributions, of €2.6m last year. Tommy Breen, CEO of DCC, received €1.4m for the year ending March 2012 and Ryanair’s boss Michael O’Leary was paid €1.3m for the same period.

But Ryanair, DCC and CRH are all large, successful Irish companies. If Messrs Breen, O’Leary and Lee had run their companies into the ground they would not have been rescued by the State. Banking is different, however. If lenders suddenly pull down the shutters the effects can be catastrophic.

In view of the fact that the banks had to be rescued, senior bankers can’t compare themselves to other large companies. The lenders cost the equivalent of two years of tax revenue to fix (and that’s before interest and the cost of NAMA is included.) Bankers’ packages are a real source of concern among the taxpayers who rescued those lenders. This issue won’t go away.