Bank of Ireland Statement on Bonuses

Bank of Ireland notes the report by the Department of Finance on bonus payments and re-iterates its apology to the Minister for Finance, and to his Officials, for the quality of the information supplied for response to recent Dáil questions on bonus payments.

The Bank also apologises for the considerable delay in providing the information to the Department of Finance as it conducted its enquiry.  This primarily reflects the fact that this historic information is not retained centrally.  In addition certain businesses/activities have been sold, closed down or discontinued over the period.  As such, the provision and validation of this information placed a high degree of reliance on the manual interrogation and reconciliation of over 46,000 individual payroll records, and the complexity of this exercise led to errors, including omissions,in the information initially provided to the Department, which have now been corrected. This exercise and the final information provided have now been verified by the Bank’s Group Internal Audit Department.

While there was no intention on the part of the Bank to mislead in relation to the original Dail Question, the end result was that errors were made and the Bank has acknowledged this in its apology.

The Bank has agreed to make a payment of €2 million to the State to recognise the difficulties caused by the way the Bank handled this matter.

The Bank has advised the Department of Finance that it has reservations about some of the assertions in the report related to the due diligence process.

A specific misunderstanding arose in relation to the term “Performance Bonuses”.  In response to Dail questions the Bank said these were no longer paid.  Bank of Ireland has used the term “Performance Bonuses” in communications to its own employees and externally to refer to bonus payments over which the Bank has discretion.  Bank of Ireland has ceased to make such discretionary bonus payments which have historically made up the majority of non-salary payments.

The Bank accepts that the term “Performance bonus” is open to different interpretations and did lead to confusion in relation to bonuses that are contractually or legally due to be paid and which may be considered to have a performance element in that, for example, the recipients could not have an unsatisfactory performance rating while awaiting the deferred payment as well as still being in the Bank’s employment at the date of payment.

In addition there are certain other non salary payments which the Bank does not classify as “bonuses” but which the Bank has disclosed in the interests of transparency.

Since January 2009 Bank of Ireland has only made non-salary bonus type payments where it has a clear legal obligation to do so or where the Bank believes there is a clear commercial case that is in the best interests of the business and its stakeholders (including the State) to have such arrangements and adhere to the contractual obligations arising there from.  Examples of this latter type include retention payments such as where a business is for sale or is being restructured or wound-down and retention of key staff is a necessary part of maintaining maximum value. In certain instances it is a specific requirement of an oversight authority (such as the EU) or of a potential purchaser that we do so.

The Bank has also had and continues to have a number of staff who receives payment through commission on earnings in addition to their basic salary.  Such commissions are related to revenues generated within very strict risk and compliance parameters and are a feature of a number of industries where sales commission is an integral part of employee remuneration.

Deferred/guaranteed bonus and retention payments accounted for circa 2% of 2010 staff costs.  Over the past 3 years the Bank’s staff costs have reduced by approximately 20% reflecting significant reductions in the numbers of people employed, wage freezes and the elimination of discretionary performance bonuses.  In addition a Pension deficit totalling €1.6 billion at December 31 2009 has been reduced by approximately 75%, largely through agreed significant changes to Employees’ Pension benefits.  The Bank will continue to take steps to reduce its cost base.

While payments made by the Bank to employees were not in breach of the 2009 Subscription Agreement, the Bank, in its January 2011 review of information supplied to the State in early 2009 in relation to contracted payments, uncovered some errors.  The Bank brought these errors to the State’s attention.

Bank of Ireland is committed to an open, transparent and responsible relationship with Government.  The Bank regrets that this was not achieved in relation to these matters.  An internal investigation is underway to identify the actions necessary to ensure there is no re-occurrence of these issues.  Revised procedures on the management and control of data are also being introduced to improve the speed and accuracy of information gathering for needs such as responses to Dail questions. Definitions of different types of non salary payments and the purposes of each have now been clarified with the Department of Finance.

Remuneration for employees will continue to be designed to ensure that it conforms to all ongoing regulatory requirements, recognises the support the Bank has received from tax payers and specifically protects the interests of all stakeholders in the Bank with regard to the issues the Bank faces and does not encourage or reward excessive risk taking.