April 19, 2018 / 3:47 PM / a month ago

UPDATE 2-Allied Irish Banks' deferred share plan rejected by government

* Dublin banned bonuses, capped pay during banking crisis

* AIB fears it could lose staff to Brexit-bound banks (Adds AIB statement)

By Padraic Halpin

DUBLIN, April 19 (Reuters) - Ireland’s government will use its majority shareholding to vote down Allied Irish Banks’ (AIB) plans to introduce a deferred share plan for senior executives that the bank says would mitigate the risks it faces in retaining key staff.

AIB fears it may lose staff to international banks that are moving operations to Dublin as a result of Brexit, and do not fall under the cap on executive pay and ban on bonuses that Dublin introduced during its banking crisis a decade ago.

While Irish Finance Minister Paschal Donohoe acknowledged the restrictions could act as a barrier to the retention of some staff and launched a review of banking remuneration policy, he said the current policy remained appropriate.

“AIB have expressed concerns publicly in relation to the need to retain staff and compensate them accordingly... I don’t believe that is currently a risk,” Donohoe told reporters.

“It is a fact that those banks (entering the Irish market) will not be subject to this policy, that is why what I believe is appropriate is to look at how this matter can be dealt with in the future, conscious of the fact that the context of Irish banking is going to change.”

AIB welcomed the government’s decision to launch the review and said it looked forward to its swift conclusion. Donohoe said the review would likely take place by the end of the year.

The bank last month proposed the plan that would be worth as much as 100 percent of salary and vest only if the state was able to sell more of its 71 percent holding. However it required formal approval from Donohoe at a shareholder meeting next week.

Donohoe said he would also abstain in a Bank of Ireland vote on Friday seeking approval to engage with shareholders on a future incentive scheme that could kick in a soon as 2019. The state owns a 14 percent holding in the bank.

As well as banning bonuses and capping bankers’ pay at 500,000 euros ($617,000), the then government also passed a law in 2011 to introduce a so-called ‘super tax’ of 89 percent on any banking remuneration over 20,000 euros.

Donohoe said the super tax could only be altered with the support of parliament, where he is currently part of a minority government.

Ireland pumped a total of 64 billion euros into its banks during the crisis, which, at almost 40 percent of annual economic output, was the most expensive rescue in the euro zone.

It still holds a majority share in two of the three remaining domestically-owned lenders 10 years later.

$1 = 0.8102 euros Editing by Andy Bruce and Mark Potter

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