The 52-page report Mizrahi Tefahot Bank released ten days ago reveals the heated struggle within the bank over employment terms for the chief executive officer, Eli Yones. The report shows that Yones threatened to leave the bank as the global economic crisis escalated to new heights, which was the central reason that the board of directors finally approved the salary terms he demanded.
The report describes how external directors, who opposed the terms, abstained in the vote or were absent from the decisive discussion, and points out regulators who failed to demand a transparent report.
The new contract gives Yones a monthly salary of NIS 214,000 and stock options convertible into 2.5% of the bank's stock, among other benefits.
It all began on September 1, when the board's ad hoc remunerations committee appointed a team of three persons to negotiate the extension of Yones's tenure.
The team included chairman of the board Jacob Perry, external director Abaham Natan spelling and director Zvi Efrat.
The team held five meetings with Yones and his lawyer, Ariel Shemer in September and October, and reported back to the committee on the agreements that they had reached with Yones. These were approved by a majority of two against one.
Natan, who objected to the demands, abstained in the vote. He asked that the calculation of profits on which Yones's bonus is based exclude one-time profits that the bank earns, for instance from selling assets.
Natan also thought that the stock options for Yones should be capped at 2% of the bank's stock instead of 2.5%.
In response to his objection, Yones offered to waive his bonus, and Natan withdrew his objection to the options.
Another point of dispute was the issue of the exercise price of the options.
The issue was handed over to the board's auditing committee, which include external directors Avraham Natan and Avi Zigelman, as well as Joseph Bahat and Avraham Shochat.
The exercise price agreed on with Yones was the closing price of the bank's share on November 9, which was NIS 21.18. Natan and Zigelman had objected to that, though, arguing that the exercise price should be higher, among other reasons because the exercise price on options granted to employees on June 8 was NIS 25.15.
They may have objected, but Natan and Zigelman chose to abstain in the final vote.
"Natan and Zigelman are in agreement with the rest of the board members on the great importance of continuing the tenure of the current chief executive, and in order to ensure the bank's stability, they opted to abstain in the vote on the option exercise price," the report explains.
Another clause that was the subject of contention was the issue of his cooling-off period.
Yones demanded that the period be shortened from six to three months, apparently to provide him more flexibility in any future transition to management of a different bank, if he so chooses.
Natan thought that Yones should not be permitted to shorten this period. He raised his objection in the audit committee, explaining that in his opinion it wouldn't be in Mizrahi's best interest.
A cooling-off period of at least three months is too little for the CEO of a bank, Natan argued, including in the current circumstances, in light of the authority of his position and the sensitive and secret information to which he is privy.
Zigelman agreed in principal with Natan's position, but in the circumstances decided to abstain in the auditing committee's vote.
And so, with two external directors abstaining from the vote on the exercise price of Eli Yones' stock options even though they thought it was too low, and with one director declining to vote on the CEO's shortened cooling-off period even though he argued that it was inappropriate, the audit committee reapproved the extended tenure of Eli Yones as CEO of Mizrahi-Tefahot, by a majority of three out of five.
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