Written answers

Thursday, 16 December 2010

Department of Finance

Bank Guarantee Scheme

5:00 am

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Question 153: To ask the Minister for Finance in respect of bonuses paid by credit institutions covered by the eligible liabilities guarantee, if he will set out the tax arrangements; if income tax becomes payable on these bonuses in the year in which they were earned or the year in which they are paid; and if he will make a statement on the matter. [47992/10]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Minister, Department of Finance; Dublin West, Fianna Fail)
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I am informed by the Revenue Commissioners that income tax is chargeable on employee bonuses in respect of the year in which those bonuses were earned, although PAYE tax is deducted in the year in which they are actually paid. Where the marginal income tax rate is the same for the year of payment and for the year the bonus was earned – for example, the rate has remained at 41% since 2007 – the tax deducted under PAYE will have discharged the correct liability. Employee bonus payments are charged to the Income Levy and the Health Levy, or the Universal Social Charge for 2011 onwards, for the year in which the payment is made, irrespective of the year in which the bonuses were earned.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Question 154: To ask the Minister for Finance, in respect of bonuses paid by Allied Irish Bank, when he first became aware of the payment of sums of €54 million and €40 million in the years 2009 and 2010 respectively; when he became aware of these bonuses; if he sought to introduce a system for reducing or mitigating them; and if he will make a statement on the matter. [47993/10]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Minister, Department of Finance; Dublin West, Fianna Fail)
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In July 2009, Allied Irish Banks (AIB) brought to the attention of my Department that certain legacy issues had arisen regarding pre-existing contractual payments arising from their 2008 Capital Markets bonus scheme. The 2009 Scheme was withdrawn. These issues related to overseas locations where legal action had been threatened or initiated by some AIB employees. AIB advised that awards due to Irish based staff under the same bonus scheme had been deferred. AIB, based on legal advice available to them, paid these and other similarly pre-existing contractual bonus commitments whilst continuing to defer the awards due to Irish based staff.

In April 2010, AIB informed my Department that legal action to obtain payment of awards outstanding to Irish based employees had been initiated. They indicated that the legal opinion they had procured stated that the bank had a legal obligation to make these payments. They further advised that the aggregate value of the awards was c€35.5m covering 1,460 employees with no senior executives involved.

The legal advice, I received at that time, was that there were no legal powers available to me based on the circumstances pertaining to stop AIB from fulfilling any legal commitment. In July 2010, AIB were advised that the matter of the payment of the awards to Irish based employees under the 2008 Scheme was a matter for the board of AIB to determine whether it had a legal obligation in relation to the awards.

The Deputy will be aware of the ensuing events which led to the High Court Order of 3 November 2010 in relation to a particular case and the subsequent controversy which ensued over the proposed payment of the remaining awards. The Deputy will also be aware that, following recent consultations, based on legal advice from the Attorney General that it was now possible in view of the changed circumstances of the bank since the bonuses were earned to stipulate that the provision of further State funding to AIB will be conditional, inter alia, on the non-payment of any bonuses.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Question 155: To ask the Minister for Finance in respect of bonuses paid after September 2008 by credit institutions covered by the bank guarantee, the reason the obligations in respect of these bonuses was not either reviewed or made subject to emergency financial measures in the public interest in the form of a surtax or a [i]de minimis[/i] rule whereby bonuses would be taxed at a minimum effective rate of circa 80%, or their abolition in view of the institutions' reliance on State support and inability to meet financial commitments; if such options were examined by him or by any of the authorities advising him; if so, if he will publish this advice; and if he will make a statement on the matter. [47994/10]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Minister, Department of Finance; Dublin West, Fianna Fail)
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The position regarding the payment of bonuses to senior management and staff in the covered institutions since the publication of the CIROC Report in March 2009 is that the legal advice at the time was that pre-existing contracts had to be honoured and bonuses relating to such contracts should be paid. For details of the bonuses paid out by the covered institutions since September 2008 the Deputy should refer to my answer to PQ 47995. The Deputy will be aware that a breakdown of bonus amounts and staff levels show that many were for performance related payments to Junior Management, Professional/ Specialist and Clerical Grades. However, very substantial sums have also been paid to people at higher levels, including the €1ml paid to the CEO of INBS in November 2008.

Since the commencement of the Government Guarantee Scheme in September 2008 many of the covered institutions have become more dependent on State support for their funding. This additional reliance on Government intervention has changed the situation with regard to payment of any bonuses, and as a result I have taken action to introduce provision in the Credit Institutions (Stability) Bill 2010 which will stem the payment of bonuses for those banks receiving State support by way of capital investment by the Government. The question of a surtax is one which I will consider in the context of the forthcoming Finance Bill.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Question 156: To ask the Minister for Finance in respect of bonuses paid after September 2008 by credit institutions covered by the bank guarantee, the number of staff at each of the institutions who have received bonuses for the years 2008, 2009 and 2010; the sums of money that have been paid by each institution by way of bonuses in each of the years 2008, 2009 and 2010; and if he will make a statement on the matter. [47995/10]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Minister, Department of Finance; Dublin West, Fianna Fail)
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The Deputy will be aware that since the introduction of the Government Guarantee Scheme in September 2008 there have been a number of Government backed initiatives which impact on the operational environment and place specific restrictions and limitations on the covered institutions in relation to the payment of bonuses to their senior management and staff. I refer to the publication of the CIROC report and the subscription agreements for the recapitalisation of Bank of Ireland and AIB, the nationalisation of Anglo Irish Bank, and the later capital injections by Government in support of the EBS and INBS. I would point out to the Deputy that the covered institutions operate in an arms length capacity in relation to operational issues. It is a matter for the respective individual boards and senior management to determine and implement pay policy in their organisations subject to their relevant operating environment.

From enquiries made, I am informed by the respective institutions that the position regarding the issues raised by the Deputy in relation to their organisation is as laid out in the following appendix. I am still awaiting a reply from Bank of Ireland which I will forward on to the Deputy as soon as I receive it.

Year that bonuses were paidBankNo of staff paidTotal amount of bonuses paid
After Sept 2008BOI
AIB681€1.3m
Anglo Irish1,594€20,771,353
EBSNilNil
INBS318€1,448,000
IL&P13€11,834
2009BOI
AIB1,387€19.3m
Anglo Irish10€396,603
EBS35€145,600
INBS2€12,300
IL&P509€745,680
2010BOI
AIBNilNil
Anglo Irish5€273,787
EBS69€326,006
INBS1€9,000
IL&P103€46,891

Regarding AIB, of the €19.3m paid in 2009, €18.3m was paid to overseas staff. The remainder represents payments to 750 staff in areas such as contact centres. Anglo Irish Bank has ceased to award bonuses since 2009. Bonus payments reported in the table above refer to bonuses paid that were awarded prior to 2009. The payment amounts set out in the 2008 section of the above table are in respect of bonuses earned prior to that period. There were ten bonus awards paid during 2009. The breakdown was as follows: nine were contractual entitlements to a deferred portion of a bonus earned in previous years and one was a performance related bonus in respect of year 2008 but implemented for payment in 2009. There were five bonus awards paid during 2010. All of these awards were contractual entitlements to a deferred portion of a bonus earned in previous years. There were no performance related bonuses awarded during 2010.

No management or general bonuses have been paid in EBS Group since 2008 with the exception of two cases set out below which relate to a contractual remuneration structure in one case and a once off retention payment in the other case. In January 2009, as part of their normal contractual remuneration structure, 35 employees in staff grades in EBS' Direct Call Centre received bonuses averaging €4,160 per employee. In January 2010 the same category of 43 staff grade employees received an average bonus of €2,442. Exceptionally in January 2010 as part of a once off contractual retention scheme, 26 employees in the EBS Broker business subsidiary, Haven Mortgages Ltd., received lump sum retention payments averaging €8,500 per employee.

INBS advise that in November 2008, the former Chief Executive of the Society received a bonus of €1m from the Society. As set out in the INBS 2008 annual report and accounts, this comprised part of his overall remuneration of €2.313m in 2008 which also included €450,000 described as "other payments" in the report. The Society further advises that, apart from the payments to the former Chief Executive in 2008, payments totalling €378,000 were paid to 314 staff in December 2008 in line with similar payments made at Christmas in preceding years. This payment was not made in either 2009 or 2010 and has now been discontinued. In addition, performance related bonuses totalling €70,000 were paid to three staff in 2008. Two staff received payments totalling €12,300 in 2009, one of which was a contractual payment and the other an ex-gratia payment. One member of staff received a contractual payment of €9,000 in 2010, but which will no longer apply in the future.

The breakdown in the level of staff receiving bonuses in Irish Life and Permanent is as follows: Specialist / Professional and Clerical staff received bonuses in respect of the three years 2008, 2009 and 2010. Executive and Senior Management received bonuses in 2009 only and included with other staff levels in the table above. Junior Management received bonus payments for 2009 and 2010. The number of payments which is the number reported as number of staff paid in the table may differ from the actual number of staff paid , as some staff members may have received more than one payment in the year.

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