Inflated, bloated executive salaries at Irish Nationwide Building Society, despite CIROC recommendations

The response by Brian Lenihan to a question posed by Deputy Seán Barrett TD about the level of executive remuneration at Irish Nationwide Building Society was curious.  The question was put on May 12 – asking Lenihan ‘what steps he will take to ensure the Irish Nationwide Building Society complies with the recommendations made by the covered institutions remuneration oversight committee; and if he will make a statement on the matter’.  The response was “I am advised by Irish Nationwide Building Society that the remuneration of Directors and senior staff at the Society is in compliance with the recommendations of the Covered Institutions Remuneration Oversight Committee.”

This wretched building society has already reported a loss of €2.48 billion in 2009.  It devoured €2.7 billion of public money.  Ninety six percent of its €2.7 billion impaired loans relates to speculative commercial property transaction, much of it not even in this country,

The six years of delinquent financial regulation was characterised by what appears to have been a very passive relationship to this Society.  It is astonishing that the Brian Lenihan’s advisers chose to rely on information from Irish Nationwide about the issue of executive remuneration because a casual perusal of the 2009 Annual Report would suggest otherwise.

Rather light-touch, I would have thought, on the part of the Minister's advisers. The debacle that Ireland is now in is attributable to excessive reliance on the representations of this entity and its counterparts rather than vigilance, understanding and verification; an attitude more Greek than German.  The two directors representing the public interest, for example, were paid €38,000 more that CIROC recommended they be paid. 

The Covered Institutions Remuneration Oversight Committee (CIROC) report was published by Minister Lenihan on 27 February 2009 and given the crisis that prevailed then and the sense of urgency and caveats which the report  reflects, one presumes that its recommendations were to be promptly effective from 2009 financial year.

The CIROC report recognised that reduced salaries for some executives may require the revision of existing contractual arrangements; that there must be sufficient headroom between the recommended remuneration of a chief executive and the salaries of those reporting to the chief executive, such as the chief financial officer. Any departure had to be justified on case-by-case basis. It also noted that top-level individuals in financial institutions did not generally contribute to their pension funds and recommended that a review should reflect an appropriate balance between the personal contribution of all employees and that of the employer.

The CIROC report recommended the following levels of base annual remuneration in the case of Irish Nationwide Building Society:

• Chairman €144,000 (40% of chief executive's base salary)

• Chief Executive €360,000

• Ordinary board member €29,000 (20% of chairman’s fee)

• Board member chairing major committee €36,000 (25% chairman’s fee)

The Annual Report reveals:

• The role of chairman of Irish Nationwide was remunerated in 2009 within CIROC guidelines.

• The role of chief executive was paid €494,000, that is €134,000 in excess of what CIROC recommended. Mr Fingleton, as chief executive from 1 Jan – 30 April, was paid €221,000 for that period - €101,000 more than CIROC recommended.  The current chief executive, Mr McGinn, received, on a pro rata basis, €22,000 more than CIROC recommended. Mr McGinn apparently has the use of a residence leased by the Society towards which he paid a personal contribution of €6,050 from 15 Jul to 31 Dec. It is not clear if there is an undisclosed subsidy amounting to the difference between this sum and the actual rental for this period.

• Each of the current non-executive directors is a chairman of a major sub-committee of the board of the Society but the remuneration of each of them exceeds CIROC recommendation by a cumulative sum of over €68,000 - details attached.

• The role of chief financial officer which ought to attract a remuneration ‘with sufficient headroom below the remuneration of the chief executive, €360,000’ was paid a total of €539,000. This includes the remuneration of the former executive director and Secretary, Mr Purcell, who was paid €385,000 in 2009. I would question in this instance, that apart from breaching CIROC recommendations, there is information in the public domain that the records of this Society are in such a state that the current chief executive severely criticised the impact of the lending policies and practices of the previous management and that the determination of the final losses of the asset portfolio remain highly uncertain. Does this not raise fundamental questions relating to the corporate governance of this entity as the Government rushed headlong into committing €2.7 billion to it, only to realise that billions more in State funding are needed if it is to be kept on life-support.  Under what circumstances could Minister Lenihan have entertained a derogation from CIROC recommendations in the case of Mr Purcell, if one was sought, against the background of the information now in the public domain?

Readers may not be realise that in addition to the €28 million personal pension fund paid for by Irish Nationwide and received by Mr Fingleton in 2007 that he also remunerated himself in the sum of €10 million from the period our property bubble began inflating, 1 January 2003 until he departed on 30 April 2009.  This puts the €1 million pre-contractual bonus that he paid himself in 2008 in a wider context. 

Incidentally, the pension fund for the 399 staff of the Society, whose average annual pay is approximately €41,000, is €4.4 million - one seventh of the sum Mr Fingleton personally obtained.  The employees pension fund  bore a deficit of €700,000 on 31 Dec 2009.

Is the reformation of our financial system not in some ways comparable to the reform process that Mayor Giuliani deployed in cleaning up New York – where discipline started with the seemingly inconsequential issues, like removing graffiti from the subway system?  But in this instance, is compliance with top-level remuneration CIROC not a most obvious example of a similar discipline?