The Israel Corporation got a stern dressing-down from the Securities Authority after its board splashed out on its managers less than 24 hours before a law clipping its wings was set to go into effect.
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Idan Ofer's holding company approved excessive salaries and generous bonuses in the form of stock options worth NIS 240 million to its senior managers, less than a day before an amended law dealing with the salaries of its upper echelon workers would become official.
“Although the new amendment to the Companies Law, designed to regulate senior level salaries, has not yet been implemented, The Israel Corporation’s board of directors is not free to do as it pleases," the ISA said in a letter, referring to the new Amendment 20 to the Israel Companies Law.
The board approved extending the tenures of CEO Nir Gilad and of Chairman Amir Elstein by three years, along with changes to their benefits, which included stock options.
The Security Authority said The Israel Corporation had decided in August to remove from its agenda any discussion of directors’ salaries, in view of the impending approval of Amendment 20. However, the issue arose again in November. The Authority’s letter said it wanted immediate answers to a series of questions, including: “When did the board reverse its earlier decision? Which authority in the Corporation made the decision and what considerations led to the change?”
The Authority also questioned the board’s rush to approve changes in remuneration just before the new regulations were to kick in. The Authority also asked, “How does the accelerated approval concord with the company's best interests and with confidence in the board’s loyalty to the corporation and its shareholders?”
The Authority also demanded the board explain its rationale for linking the salary of Gilad to that of David Azrieli, chairman of the board and controlling shareholder in the Azrieli Group, since Azrieli’s pay had never been brought to the board for approval.
The Authority also wants Israel Corporation to explain how granting stock options at the share price trading on the day the options are granted fits in with its declared policy of building a long-term system of rewards. The Authority also demanded transparent reporting of the work of the consulting firm PWC, which prepared the questionable compensation scheme for senior managers.
The Authority’s move was apparently driven by an attempt to override the board’s claims in response to the derivatives suit filed last month by shareholder Roy Brandeis against the company and its board, in relation to its stock options decision.
Brandeis argued that the decision was made with the knowledge that Amendment 20 to the Companies Law was about to be implemented. He claimed that this was a flawed snap decision, designed to bypass the new and more stringent regulations for such approvals, and that the board’s concern was that the new rules and norms would not allow continuance of such generosity in granting stock options.
Brandeis argued that this move warranted filing suit against the company, since it constituted a breach of trust and showed that board members acted without caution and with lack of good faith. The claimant further argued that the CEO’s bonus was unreasonable and disproportionate to any contribution he could offer the company.
In its response, the Corporation argued that no decision had been made in August to remove the issue of benefits for senior management from its agenda prior to implementation of Amendment 20. Furthermore, it claimed that the company’s wellbeing was at the forefront of their policy decisions.
The letter of response states that “board members devoted many hours to discussions of suitable remuneration, asking for clarifications and further information. Several options were considered until a judicious, well-informed and independent decision was taken, not necessarily reflecting the initial package which had been proposed. The board sincerely believes that its considerations were proper and reflected the long-term interests of the corporation.”