Irish banks have cut thousands of jobs and executive pay as the result of a 2008 banking crash, which led to the closure or merger of half of its domestic banks, the exit of a slew of foreign lenders and an international bailout that it completed last year.

Bank of Ireland said the new proposals would increase salaries by 1.75 percent this year, back-dated to July, and by 2 percent from January. Staff will also receive a one-off payment equivalent to 5 percent of their current salary.

The bank, Ireland's only lender to escape nationalisation, reported a profit for the first time in five years in August.

The Irish Bank Officials Association (IBOA), the country's largest banking union, will ballot its members next week and recommend the proposals be accepted. Bank of Ireland said talks were taking place with other unions regarding their members.

"The proposals acknowledge the major sacrifices made by Bank of Ireland employees over the last six years in terms of job cuts and reduced earnings," IBOA General Secretary Larry Broderick said in a statement.

Broderick said that the development should set a precedent for other financial institutions, which are now returning to profitability and facing similar issues in terms of career and reward structures for employees.

The salary increases will not apply to senior management at Bank of Ireland, which has cut staff by over a quarter since the last pay rises in 2008, a source familiar with the matter told Reuters.

(editing by Jane Baird)

By Padraic Halpin