Mr. Gerry Quinn:

I wish the Chairman and members a good afternoon and thank them for the opportunity to appear before them today to discuss the special report of the Comptroller and Auditor General on the management of severance payments in public sector bodies. The Central Bank of Ireland welcomes the report and, as acknowledged by the former Governor in the report, we agree fully with the recommendations that pertain to the bank. In this context, the bank has undertaken a number of actions to implement the recommendations in full. These include the introduction of clear guidelines and robust risk management procedures for individual discretionary severance payments. The Comptroller and Auditor General's report recognises that in certain cases termination agreements providing for such payments may be in the best interests of both the employer and the employee. The Central Bank agrees with this statement and believes that this is reflected in each of the highlighted cases given the specific circumstances involved. In my short introductory remarks, I will briefly address the procedures surrounding severance payments within the bank, the number and cost of the cases and, finally, touch upon the circumstances of the cases which were highlighted in the report.

Looking at procedures, the report assesses compliance with good practice and, for the bank, finds some discrepancies with regard to the documentation of the options, rationale and legal advice for the decisions. It also found issues surrounding the formal delegation of authority in relation to the approval of severance payments. The bank now has a clear, documented and formal policy that has been in place since July 2015 when it was approved by the Central Bank Commission's budget and remuneration committee. It is also published on our website. The policy includes procedures to ensure adequate control and oversight over, first, the decision to enter into negotiations; second, the severance amount to apply in particular circumstances; and, finally, the written terms of the severance agreement. Furthermore, a cost-benefit analysis is always required and this must be supported by detailed written legal and/or employee relations advice. However, I note that while this formal policy post-dates the severance arrangements referenced in the report, all arrangements detailed in the report were made in the full knowledge of the appropriate senior level management within the bank. This was either myself as chief operations officer or the director of human resources. Furthermore, all arrangements were negotiated by or with the assistance of legal advice.

Turning to the number and cost of the severance payments, the report notes that the bank had more frequent recourse to termination agreements and severance payments during the period under review than the other public bodies examined. This refers to six cases over the period 2011 to 2013 totalling €384,000 with associated legal costs of €157,000. As highlighted in the former Governor’s response, the cases occurred in a period of unprecedented growth where bank staff increased by approximately a third between 2009 and 2013 as a result of the bank’s increased mandate and its more intrusive supervisory approach following the financial crisis. In fact, by 2013, the bank had more than 1,400 employees compared to approximately 1,000 in 2009. The arrangements examined in the report amounted to an average of two cases per year and €64,000 per settlement and represented 0.11% of the bank's total payroll expenditure over the 2011 to 2013 period. The individual settlements were entered into with a view to avoiding alternative outcomes which could have proved far more costly in the long run. In the view of the bank, the agreed outcomes represented the most cost-efficient solution in the particular circumstances of each case.

Turning finally to the specifics, the report draws attention to four cases: a long-term contractor who had never formally been an employee of the bank; a case where the individual had not yet commenced employment with the bank; and, two cases where employees had less than two years' service. It is important to state that the Comptroller and Auditor General did not make any assessment of the individual cases. Rather, the report focused on the procedures and processes used to deal with them. I will, however, briefly address each of the cases in turn but only in a general manner. As members will appreciate, for data protection and confidentiality reasons, the bank, like the Comptroller and Auditor General, can only disclose details to a level that will not identify or give rise to the identification of any individual involved. Of these cases, two related to settlements arising from pending court proceedings. The first of those related to a contractor who claimed to have been an employee. This settlement was agreed in advance of the hearing of High Court proceedings which were taken by the individual. This settlement was agreed following the consideration of legal advice and in view of the likely cost of the High Court proceedings. In the second case, a candidate was awarded a role and resigned an existing position. The individual alleged that the bank's pre-employment processes did not make sufficiently clear the conditions of employment prior to the resignation. The individual was unwilling to take up the role on the basis of these conditions of employment and took High Court proceedings on a number of grounds. A settlement of €32,000 plus legal costs of €25,000 was agreed following legal advice. In two other separate cases of fixed-term employment, the employment relationship broke down for differing reasons. Settlements were agreed which were acceptable to both parties and which represented the most cost-efficient solution from the bank's perspective.

In conclusion, the bank believes that the outcomes in the six cases highlighted were the best possible in the circumstances. The bank accepts the deficiencies identified in the report in relation to our policies and processes. A range of improvements has been implemented, including a formal discretionary severance policy, a written delegation of authority, a revised probation policy, revisions to our code of ethics, measures to clearly distinguish between independent contractors and employees and revisions to our pre-employment processes. I hope the above gives the committee a picture of the context behind the payments at the time and the changes made by the bank since then to improve our processes and implement the recommendations of the report in full. We welcome and will do our best to answer the members' questions.