The government is renewing efforts to crack down on excessive compensation in the banking and financial services sector.
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The Bank of Israel on Sunday issued a draft directive that would cap annual compensation for bank chairman at 2 million shekels ($520,000). Meanwhile, at the treasury sources said Finance Minister Moshe Kahlon is dusting off a proposal that would bar financial services companies from expensing for tax purposes executive compensation exceeding 3.5 million shekels a year.
The draft Bank of Israel directive followed a joint declaration last week by Banks Supervisor David Zaken and Dorit Salinger, the treasury’s director of capital markets, insurance and savings, capping compensation to the chairmen of financial services companies under their supervision.
Salinger is expected to release the details of her plan for insurance companies within days.
Under Zaken’s proposal, bank chairmen would be allowed a base annual compensation of 594,000 shekels and up to 11,400 shekels for each board meeting they attend, for a maximum of 2 million shekels, excluding social benefits.
In the directive, those terms are defined as the base salary component not exceeding four times what an outside director of the bank receives and the fee for attending each meeting as not exceeding twice what an outside director is paid.
The Bank of Israel’s move come 18 months after it told banks that bonuses to top executives could not exceed their base salaries. That caused a drop on average of about 35% in compensation last year, but Zaken wanted to ensure that chairmen had no incentive to boost executives’ compensation in the future.
To do so, he is now seeking to unlink the chairman’s compensation and the bank’s business performance.
“The amendment’s purpose is to reinforce the position of chairman of the board as a control, strengthen his status on the board and to differentiate it from the management of the regulated entity. In addition, the directive is expected to strengthen the independence of the board in deciding on the remuneration of executives,” the central bank said.
If approved in its current form, the directive would mean sharp pay cuts for four of the five chairmen leading Israel’s biggest banks. Bank Hapoalim’s Yair Seroussi received 7.9 million shekels in compensation last year, the highest among the five. Only Israel Discount Bank’s Yossi Bachar earned less than 2 million shekels.
At the treasury, the Kahlon plan is being readied to go to the Knesset where an earlier version by his predecessor, Yair Lapid, got sidelined by the general elections and passed only the first of three readings needed to become law.
The Kahlon plan keeps the 3.5-million-shekel ceiling while barring financial services companies from getting around it by offering executives stock instead of cash compensation. Under the Kahlon plan, the value of any stock offering in lieu of cash would be deducted from the ceiling.
Even if they are willing to forgo expensing compensation against their taxes, companies will still have to get a series of approvals before they can exceed the limit, under the Kahlon plan. They include votes by the board’s auditing committee, the full board and shareholders.