Dáil Éireann Debate, Wednesday - 15 February 2017
123. Deputy Pearse Doherty asked the Minister for Finance his views on the possible re-emergence of a bonus-based pay culture in the banking system which could increase the probability of reckless behaviour in future; and if he will make a statement on the matter. [7580/17]
Amharc ar fhreagraThe excesses seen in the banking system prior to 2008 have resulted in significant changes to the regulatory framework facing the industry. This included a number of changes to the framework that applies to bonus payments (including salaries and discretionary pension benefits) to staff of relevant institutions. The aim of these changes is to prevent a re-emergence of the issues we have seen in the past of short-term targets being the focus of institutions due to the remuneration policies implemented for staff resulting in significant risk taking.
The Capital Requirements Directive IV (CRD IV) introduced a remuneration framework to deal with excessive risk taking.
The framework includes a number of criteria to prevent a return to the excesses of the past. These include requirements on individuals within a relevant entity whose professional activities have a material impact on their risk profile, known as 'material risk takers'.
These material risk takers include senior management, risk takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers.
The remuneration paid to these material risk takers must consist of the following structure: a substantial portion, and in any event at least 50%, of any variable remuneration should consist of equity-linked or other non-cash instruments; a substantial portion of the variable remuneration component, and in any event at least 40% to 60% (the latter in the case of a variable remuneration component of "a particularly high amount") should be deferred over a period of not less than three to five years; the variable component of the total remuneration shall not exceed 100% of the fixed component of the total remuneration of material risk takers; shareholders, owners or members of the institution, acting by a qualified majority can approve a higher maximum level of the variable component provided that this level does not exceed 200% of the fixed component of the total remuneration; and the relevant competent authority in Ireland, the Central Bank of Ireland are to be informed of recommendations to shareholders and of the result of any shareholder vote, which shall not conflict with institutions' obligations to maintain a sound capital base.
In addition the regulatory regime requires greater transparency on bonuses paid by banks with disclosure requirements relating to the number of individuals earning over €1 million per annum.
The introduction of the framework in 2014 and enforced by the relevant competent authorities across Europe is designed to ensure the excessive risk taking culture and short term focus on targets seen prior to 2008 is not repeated. This is being achieved by the framework outlined above on the structure of bonus payments by the relevant institutions and the increased disclosure requirements as introduced under CRD IV.
