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Dan Dankner, deputy chairman of the board of Bank Hapoalim, is refusing to return a sizable chunk of the salary that he received from the bank in 2005, as the Israel Securities Authority demands.

Dankner's wage costs in 2005 totaled NIS 15 million. The ISA thinks that sum should be reduced to its 2004 level, about NIS 6.5 million, meaning that Dankner would have to return NIS 8.5 million.

The ISA has demanded the same regarding the pay given to two other senior Bank Hapoalim executives: CEO Zvi Ziv and chairman Shlomo Nehama.

Dankner argues that his salary was approved by the bank's general assembly of shareholders.

Because he is one of Hapoalim's controlling shareholders, his wages and benefits require approval by a special majority of the shareholders' assembly.

In contrast, neither Ziv's salary (NIS 34 million) nor Nehama's (NIS 23 million) was approved by the shareholders' assembly, since neither man is a substantial shareholder, and therefore, their salaries do not require such approval.

Dankner argues that once the shareholders have approved his salary, there is no justification for the ISA to intervene. However, the shareholders approved the principles of Dankner's compensation package in November 2005, four months before he actually received it, and at the time, they had no idea that these general principles would translate into a salary package totaling NIS 15 million - two and a half times his 2004 salary.

Hapoalim's public image

Dankner's opposition to the refund has upset some of the bank's other senior executives, particularly Nehama, who is worried about Hapoalim's public image.

That image was savaged by news of the exorbitant salaries that the bank's senior executives received in 2005, and this is why he agreed to the refund deal with the ISA.

But if Dankner, who is evidently less concerned about the bank's public image than Nehama, stands firm in his refusal - that could torpedo the deal with the ISA, which specifically applied to all three senior executives.

The ISA has said that it would not accept a deal that did not include all three men.

Should the deal be canceled, the ISA has threatened to annul the decisions of all the various forums that approved the three men's wage payments - the board of directors, the audit committee and the general assembly of shareholders - and require each of these bodies to open new deliberations on the matter.

Such a process could result in all three men receiving significantly lower salaries, and it might also make Hapoalim vulnerable to a class-action suit against it on account of the exorbitant salaries, which were essentially funded at the expense of customers and shareholders alike.

Dankner's refusal to join the deal is also liable to renew the public outcry against the bank.

As a result, senior Hapoalim officials are continuing to try to persuade Dankner to relent. Both Nehama and Ziv have already agreed to the refund.

In response, Bank Hapoalim said that Dankner has not yet reached a final decision on whether to join the deal with the ISA. It also denied that the ISA conditioned the deal on all three of the bank's highest-paid executives participating, but added that if the ISA did impose such a condition, "Dankner would certainly not torpedo the agreement."

The bank also confirmed that Ziv and Nehama have agreed to the deal in principle.