Bank of Ireland chief blames pay cap for CFO’s exit

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A cap on Irish banking executives’ salaries introduced after the global financial crisis has prompted the surprise departure of Bank of Ireland’s chief financial officer and increased calls for the rules to be relaxed more than a decade after Europe’s biggest bank bailout.

Myles O’Grady quit to take up a better-paid job outside banking after Bank of Ireland, one of Ireland’s three national retail banks, was unable to match the salary he had been offered.

O’Grady will stay on until March 2022 and the company he is moving to was expected to be announced later on Monday.

The bank’s chief executive Francesca McDonagh — who herself secured an exemption to the pay cap when she joined the bank from HSBC in 2017 — has long complained that the €500,000 limit on executive pay imposed after Ireland’s banking crisis in 2008 is problematic.

“Myles’ decision to leave the Irish banking sector highlights the challenge that remuneration restrictions represent for Irish banks in attracting and retaining talent,” she said in a statement.

“The lack of a level playing field means Bank of Ireland is at a competitive disadvantage to other companies, corporates and PLCs who are not restricted in the same way,” she said.

O’Grady’s predecessor in the job, Andrew Keating, left two years ago to join building materials firm CRH, with the bank at the time complaining that the pay restrictions “hamper our ability to attract and retain the people we need to run and develop our business.”

Better pay elsewhere also prompted the departure of AIB’s chief executive and CFO in 2018. In addition to the pay cap, bonuses are banned — something Colin Hunt, AIB chief executive, says has proven to be even more damaging to his ability to attract staff.

Ireland is home to a number of deep-pocketed tech companies like Apple, Google and Facebook, which are not subject to such restrictions.

“Bank of Ireland is unique amongst Irish banks in being the only institution to have fully repaid the Irish taxpayer, which we did in 2013,” Patrick Kennedy, Bank of Ireland chair, said in March.

The bank says it received some €4.8bn from the taxpayer and repaid €6bn in 2013, although the state retained a stake. The Irish government currently still owns 12 per cent of the lender but is moving towards a full exit.

“The state is now showing a sizeable profit on its investment in the group. Having repaid the taxpayer in full, Bank of Ireland’s view is that it should now be permitted to develop a more normalised remuneration approach,” Kennedy said.

The state owns 71 per cent of rivals Allied Irish Banks and 75 per cent of Permanent TSB, according to Eamonn Hughes, finance analyst at brokers Goodbody, who noted other countries in the EU and UK which had also bailed out banks “have already moved on” and loosened caps.

O’Grady’s exit follows the departure of other senior officials from AIB and PTSB. However, with the government’s support wavering, according to opinion polls, and the Covid-19 pandemic still dominating policy, analysts do not expect a rule change in the near term.

“While political will to implement a more appropriate remuneration structure is likely limited at this time, a more balanced approach is required to ensure talent is attracted to, and retained within, the sector,” wrote Diarmaid Sheridan, analyst at brokers Davy, in a note to clients.

Indeed Michael D’Arcy, former financial services minister, told the Financial Times in 2019: “The senior executives are on very large salaries and, as long as the state owns [their banks], I’m satisfied the pay caps are appropriate.”