Saturday, November 21, 2009

AIB Pay Mess - political grandstanding

Politicians got another opportunity to grandstand because of the poor way in which AIB handled the kerfuffle over how much to pay its new Managing Director, Mr. Colm Doherty. The Irish Times reported that the Department of Finance had "received a broad outline of the bank’s intention to retain Mr Doherty on his existing pay level as head of the capital markets unit ... [at an] annual salary of €633,000." Having received no response, it ought to have negotiated informally with the government rather than putting forth the proposal, which was ultimately rejected. Had the matter been handled with discretion, it could have prevented much embarrassment to Mr. Doherty and avoided negative media attention. Instead, politicians of all hues took shots at beleaguered bankers and sought to feed popular anger rather than focusing on the task of real reform.

Reducing Mr. Doherty's pay from EUR 633,000 to EUR 500,000 will not clean up the current mess. Government mandated pay caps are not the answer to the financial crisis. The only certain consequence of such caps is to drive away good talent. If, as is claimed, the government is acting on behalf of shareholders, this is the last thing that a rational shareholder would want. The need of the hour is to attract the best talent available and pay them what they deserve to drag AIB out of this morass.

A singular obsession with punishing bankers at the expense of addressing the more difficult systemic challenges only serves to appease popular opinion. While this is attractive in the short term, the real task of reform suffers.