Pearse Doherty (Donegal South West, Sinn Fein)
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Question 31: To ask the Minister for Finance the position regarding the review being taken by the Central Bank into the remuneration policies and practices of credit institutions; if this review will be retrospective and allow for the renegotiation of existing contracts; if he has sought information on the contracts of senior management in the banks which have received Government assistance; the liability to the Exchequer if these contracts were terminated prematurely; the liability to the Exchequer if these contracts ran their course; and if he will make a statement on the matter. [9753/11]

Michael Noonan (Limerick City, Fine Gael)
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The Central Bank of Ireland published the findings of its review of remuneration policies and practices in a number of Irish retail banks on its website on 1 December 2010. The review assessed whether banks have changed how they remunerate employees, particularly those in senior executive positions, to reflect incoming regulatory standards and the lessons of the financial crisis. In particular, it examined if banks have ended remuneration practices which fostered inappropriate risk taking or inadequate risk management.

The review found that while the majority of banks have started to reform their remuneration policies and practices, the balance of the Central Bank's findings were discouraging. For example, there is little evidence that banks have self-consciously made a link between their risk appetite and their incentive structures exposing the banks and, by extension the State, to the consequences of inappropriate risk taking; the governance and oversight of remuneration practices is poor; and in the majority of banks, procedures to determine remuneration are not clear, well documented or internally transparent. There was little evidence of consideration of risk or collaboration with risk management functions to ensure remuneration policies are aligned with long term strategic plans.

Issues identified in the review are being followed up individually with institutions by the Central Bank. Detailed EU requirements on remuneration policies in credit institutions have come into force in Irish law since 1 January 2011 through amendments made in the capital requirements directive. These obligations are supplemented by extensive guidelines issued by the Committee of European Banking Supervisors, which is now known as the European Banking Authority, compliance with which will be closely monitored by the Central Bank of Ireland in assessing adherence with each institution's legal responsibilities. Enforcement action can be taken by the Central Bank in case of non-compliance. These measures will address the significant issues disclosed in the Central Bank's review of remuneration policies and practices which were also highlighted as significant contributors to Ireland's banking crisis in the recent Nyberg report.

Notwithstanding these developments, recent disclosures regarding payments made to the former managing director of AIB, highlight the serious weaknesses that continue to exist in relation to remuneration policies in the covered institutions.

Following a request from my Department, the National Treasury Management Agency, which has legal responsibility for managing the State's shareholder relationship with the banks, has recently written to the covered institutions requesting that they undertake a review of remuneration practice, that they have further discussion with the Department of Finance ahead of any commitment to additional redundancy payments and that the bank does not commit to further termination payments until the review is completed. An analysis of severance entitlements has also being requested.

Pearse Doherty (Donegal South West, Sinn Fein)
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People across the country were livid when they read in the newspapers that Colm Doherty was to receive a €3-million golden handshake. The Minister himself stated that it is his intention to replace all board directors who were appointed prior to 2008. I put a question on this earlier but the Minister did not deal with it. Has the Minister got a grip on this issue? As regards those officials whose contracts he plans to terminate prematurely, has he examined the assessment of remuneration and golden handshakes to which they will be entitled? How much will the State have to pay off under those contracts? What is the position concerning public interest directors in those banks? One of the public interest directors who was there when the package for Colm Doherty was signed up to, is a prominent member of one of the Government parties. Does the Minister agree with his colleague, the Minister for Justice and Equality, Deputy Alan Shatter, who told the recent annual meeting of the Association of Garda Sergeants and Inspectors, that bankers who caused huge losses, brought banks to the point of collapse and almost bankrupted the State, should not be rewarded? He also said that there was such a fundamental breach of contract that they should not be entitled to the rewards they are seeking. Is that the Minister for Finance's position? Does he believe that there will be no more golden handshakes?

On bankers' remuneration, we know there is a cap of €500,000 for senior bank officials. How is it then that the CEO of Anglo Irish Bank, Mike Aynsley, received €474,000 in 2010 above that cap, bringing him total earnings of €974,000? What is the Minister prepared to do about that in future?

Michael Noonan (Limerick City, Fine Gael)
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The Deputy has put many questions together, but they are all legitimate and fair. The former CEO of AIB had been discharged by the bank and received his severance package in November 2010 in the lifetime of the previous Government, so there was nothing this Government could do about it. We have done our best to find out the full facts of how the remuneration package was built up. While I have some of the facts, I cannot assure the House that I have the full facts at the moment. For example, even though my predecessor showed the House that the cap on Mr. Doherty's salary was €500,000 at the time, there was also a separate stream of income contributing to his annual income. That arose from the fact that in his previous position in the bank he had exceeded his pension pot. The agreement made with him was that, rather than a stream of money being put into a pension fund which was already at full benefit, the stream was given to him by way of secondary income. That continued even though my predecessor assured the House that his maximum salary was €500,000 - which, of course, it was - but he was silent on the other stream of income which in effect was treated by the Revenue Commissioners as a second salary. It was taxed and PRSI was paid on it in the normal way. When it came to computing his severance package, there were obvious difficulties. I am not convinced that I have the full picture.

Another issue which arose was that the gentleman had a long and satisfactory service in the bank. As the Deputy knows, the position historically with bank employees was that they would retire at 60 years of age. When he was made CEO of the bank his contract was not time limited, so when he ceased to be CEO his expectation as a long-time bank official was that he could continue to 60 years of age. As a consequence, he had certain rights in terms of remuneration up to 60 years of age, so the package became very large.

I have announced that I want a director and management renewal programme from each of the covered institutions. I also want information about salaries, remuneration, severance packages and everything else. To be quite frank, I cannot give the Deputy assurances that there are not legal problems in restricting severance packages. When I get the information I will decide what approach to take. My position in principle, however, is that the amount of money paid to the former CEO of AIB was an absolute disgrace. It undermines any concept of social solidarity that - when we are asking the poorest people to contribute and are telling them that everybody should contribute - somebody walks away with €3.5 million.

Pearse Doherty (Donegal South West, Sinn Fein)
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I note the Minister did not deal with the question on Mike Aynsley and the fact that he is receiving €974,000 above the cap.

Michael Kitt (Galway East, Fianna Fail)
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Can we have a question?

Pearse Doherty (Donegal South West, Sinn Fein)
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I already put that question. Does the Minister agree with his ministerial colleague, Deputy Shatter's statement that these bankers are in such fundamental breach of contract as not to be entitled to the rewards they are seeking? Let us forget about the previous Minister for Finance, because the current Minister is now in charge. Will he ensure that they will not get those type of golden handshakes when he replaces them, as he has stated again on the floor of the House? He has said that he will replace all directors who were appointed prior to 2008.

Michael Noonan (Limerick City, Fine Gael)
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In general terms I share the Deputy's sentiments but I will not make a commitment to the House unless I know that, as Minister, I can legally fulfil it. I am examining various approaches. If one follows the Deputy's initial remarks to their logical conclusion, concerning those who blatantly do not fulfil their contracts, then there is an argument to be made that they should be subject to dismissal rather than reasonable retirement. I intend to explore that area also.