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After a public uproar, Israel Discount Bank (TASE: DSCT) has decided against its indulgent stock options package for the top executives.

Chairman Shlomo Zohar has decided to forgo an options package worth NIS 35 million. He will settle for a salary of NIS 170,000 a month, as well as a profit-linked bonus. By o 2005 figures, that will be worth about NIS 2 million.

Zohar's decision represents a capitulation to public pressure following publication of the options package two months ago.

As a result of the decision, the Israel Securities Authority (ISA) has withdrawn its demand that Zohar's salary receive special approval by the bank's general assembly. The demand had been raised due to the likelihood that Zohar and the bank's controlling shareholder, Matthew Bronfman, had known each other in the past, and that Bronfman had approved the original offer.

In a complex ruling, the authority stated that if Zohar's salary package had included options, it would constitute a conflict of interest. If not, however, then it would be considered a reasonable salary and involve no conflict of interest.

Discout CEO Giora Offer also agreed to give up a NIS 35 million options package, although his salary did not require special approval by the general assembly.

Since publication of the remuneration plans offered to Zohar and Offer two months ago, Discount's share price has dropped by 20 percent, significantly diminishing the options' value.

Both Zohar and Offer's new salary packages will be brought for approval by the board of directors soon.

In a related development, the ISA has criticized the board for its approval process of the salaries of Zohar, Offer and the bank's deputy CEOs, but does not plan to take action. The authority is satisfied with the bank's decision to reverse approval of the salaries and bring them up for reconsideration by the board. As a result, the authority has withdrawn its demand that the bank hand over the minutes of the board's discussions on the matter.

The authority found three main flaws with the decision process. First, the state's position was not adequately presented by Discount's management to the board. The state, which is still a shareholder in the bank, should have made its position clear, and expressed how it would vote on the proposal when it was presented for approval by the bank's general assembly.

It transpired that each director understood the state's position differently, and it appears that at least some of them believed the state was in favor of the remuneration plan. The state's position on the matter, as formulated by Accountant General Yaron Zelekha, was that the state could not oppose the plan, which greatly differs from supporting it.

The second flaw was the quick approval time. The plan's details were given to the directors just a few days before the board met to approve it. The bank admitted that "the schedule was tight," due to the need to finish discussions prior to publication of the bank's annual reports. But it claims that during those few days, the board devoted five meetings to the matter, which was discussed thoroughly.

The third problem was that the directors did not explain, and apparently were never asked to explain, how their support of the plan was good for the bank. It is also unclear according to what criteria the board approved the plan. The bank refuted this, saying the matter was discussed by the board, the bank's supervisory committee, and the remuneration committee.

"Since the remuneration plan has been frozen, with the agreement of the Israel Securities Authority, it is unclear how these claims came to light at this time," the bank said. "There was nothing illegal in the board's decision, and we could have implemented the plan in the form that it was approved. The bank chose to freeze the plan, because its timing turned out to be damaging to the bank, and for this we don't deserve to be punished."