Bank of Ireland: Chief Francesca McDonagh resigns

    Photograph: Dara Mac Dónaill

IRELAND: The banker pay cap gives insiders an edge to replace Francesca McDonagh as Bank of Ireland CEO, if it lasts until her departure in September.

The cap is understood to be a factor in Ms McDonagh's decision to leave after a five-year stint for a new role at a European bank.

Francesca McDonagh has announced her surprise decision to step down as chief executive of Bank of Ireland, the country’s biggest lender, in what industry sources say is the latest high-profile casualty of a cap on top executives’ pay.

The bank, which was saved alongside the rest of Ireland's lenders in the largest banking bailout in the history of the eurozone during the financial crisis more than ten years ago, announced that McDonagh would be stepping down in September.

Remuneration is "an escalating risk element presently within Irish banks... that can no longer be overlooked," according to a business insider.

The insider continued, "I believe that the decision is definitely tied to compensation. We are seeing executives leave the banking sector in search of more alluring compensation packages in other areas.

Despite having paid off its debt to the Irish government almost ten years ago, Bank of Ireland(BoI) has already lost two chief financial officers and a CEO as a result of the problem, the source claimed.

Another source said that her decision had been affected by compensation and that an announcement about her new role was anticipated on Wednesday.
McDonagh, who obtained a waiver from the €500,000 executive pay cap enacted in the wake of Ireland's 2008 banking crisis, could not be reached for comment at the time of publication.

Since the bailout, Ireland's three high-street banks are required by law to set a wage cap for their senior executives. In addition, the restrictions forbid 23,000 employees, from the junior to the senior, from receiving incentives or other benefits like childcare and health insurance.

Another source said that her decision had been affected by compensation and that an announcement about her new role was anticipated on Wednesday.

McDonagh, who obtained a waiver from the €500,000 executive pay cap enacted in the wake of Ireland's 2008 banking crisis, could not be reached for comment at the time of publication.

Since the bailout, Ireland's three high-street banks are required by law to set a wage cap for their senior executives. In addition, the restrictions forbid 23,000 employees, from the junior to the senior, from receiving incentives or other benefits like childcare and health insurance.

In an interview with Ireland's Business Post newspaper in March, London-born McDonagh, who took the position of group chief executive in October 2017 after working for HSBC, said that the pay and bonus restrictions were "out of step with reality now," particularly given that BoI is anticipated to revert to full private ownership this year.

The lender, which recorded a 2021 pre-tax profit of €1.4 billion, is currently owned by the state to a lesser extent than 5%.

"I completely comprehend the rationale behind the limits' establishment. According to McDonagh, they were the appropriate course of action at the time. However, she said that forcing Irish banks to compete for talent "with one arm tied behind their backs" was unfair.

We only want to be regulated like every other bank that we compete with, she said, not for limitations to be completely lifted.

Myles O'Grady left his position as BoI's CFO in September to accept the same position at Musgrave Group, owner of the SuperValu supermarket chain, where he would receive a higher salary. Andrew Keating, who held the position before him, left in 2019 to join the building materials company CRH.

The finance minister, Paschal Donohoe, said that BoI had "prospered" under McDonagh's direction. She "played a crucial role in assisting clients and the country navigate their way through the recent Covid-19 issue," he said in a statement. She also played a key part in establishing a shift in culture within the bank and seeing through the IT transformation initiative.

The subject is anticipated to be reviewed in a conference with stakeholders on May 16; however, the finance ministry has not stated if it expects to relax rules on CEO pay and employee bonuses.

With Ulster Bank and KBC leaving the industry, Ireland's banking industry is undergoing major change. To manage consumers moving accounts when the lenders leave, BoI has hired 500 additional employees.