Under the Credit Institutions (Financial Support) Act 2008, each covered institution was required to submit a report to the Covered Institutions Remuneration Oversight Committee (CIROC) demonstrating how its remuneration policies for the year 2009 were to comply with paragraph 47 of the Scheme. CIROC in its report, submitted to me on 13 March 2009, then made recommendations on whether the covered institutions were in compliance with the terms of that paragraph. Having considered the CIROC report, I could direct the covered institution to amend the remuneration plan so that compliance would be achieved, if the covered institution had not complied with the relevant requirements.
The Government considered the CIROC recommendations in light of the further downturn in the wider economy, the prevailing financial position of the covered institutions and the fact that larger economies such as the United States and Germany had set lower caps on the salaries of Government aided financial institutions than those suggested by CIROC. In that regard, the Government considered that the CIROC recommendations regarding bonuses, pensions, long term incentive plans and board sub-committees were appropriate but that remuneration terms should be lower than those recommended by CIROC. Therefore, I sought a salary cap of €500,000 or the amount recommended by CIROC, whichever was the lesser. Any deviation from this should take place only in very exceptional circumstances and with my agreement.[ Furthermore, CIROC noted that the Financial Regulator's primary focus in this area is on ensuring that the regulated entities are incentivised to behave in a way that promotes compliance with regulatory requirements and encourages entities towards acting in the best interests of their customers. In this context, it noted that a focus on short-term profit or sales targets does not achieve this outcome and reward systems require adjustment towards more sustainable growth.
Remuneration committees are in place in the covered institutions. The Combined Code on Corporate Governance describes the functions of such remuneration committees. CIROC also dealt with the matter of performance-related bonus schemes for chief executives and executive directors and recommended that they should not lead to payments in respect of performance in 2008 or in 2009 and for the period of the Government guarantee. While CIROC considered that bonuses should not be payable now or for the immediate future, it acknowledged that it will be appropriate to introduce new bonus arrangements at a future date taking account of any long-term incentive initiatives but that this should arise only where an institution is no longer part of a Government guarantee scheme.
At European level, the Deputy will also be aware that the European Commission published a Recommendation on 30 April 2009 on remuneration policies in the financial services sector as a whole, and not just the banking sector. The Department of Finance has asked the Financial Regulator to implement the Commission Recommendation in Ireland in respect of institutions that it regulates. The Financial Regulator wrote to all credit institutions, insurance undertakings and investment firms as well as relevant industry representative bodies in November 2009 seeking views on the implementation of the Recommendation in order to inform the Regulator's approach to implementation of the Commission Recommendation in Ireland.
These views have now been received. The Financial Regulator now proposes to introduce requirements in this area and will engage in a public consultation process in the coming months. In the meantime, the Financial Regulator has written to all credit institutions, insurance undertakings and investment firms advising them of the Regulator's expectation that each institution follow the Commission's recommendations.