Israeli Bankers’ Excessive Salaries Revealed to the Public for the First Time

7,000 bank employees earn NIS 45,000-80,000 a month.

Some 7,000 bank employees take home monthly paychecks of between NIS 45,000 and NIS 80,000, with most enjoying complete job security, the Bank of Israel said yesterday in its first-ever report on bankers' pay.

The report aims to pressure banks to curtail their payroll costs, which amount to a combined NIS 18 billion annually. The Bank of Israel said yesterday that it regards this as an extravagant cost that stands in the way of reducing the fees that the banks charge for services.

"The banking system is characterized by high salary costs and low operational efficiency relative to banking systems around the world," said Banks Supervisor David Zaken. "Regulating the way compensation is decided in the banking system is vital, both for strengthening the link between employee compensation and the banks' targets, performance and risk management, and also from the perspective of operational efficiency."

Of the banking system's 48,000 employees, 18% - mostly veteran employees covered by generous collective bargaining agreements - account for 40% of total compensation costs, the Bank of Israel said. In contrast, about 25% of employees account for just 6.6%.

The survey didn't include all employees, just 40,000 employed by the five largest banks, and not their subsidiaries.

In 2011, 10.1% of bank employees earned up to NIS 5,000 a month in pre-tax salaries and 14.6% earned between NIS 5,000 and NIS 10,000 monthly.

At the higher end of the scale, 22.8% earned from NIS 10,000 to NIS 17,500, 34.4% earned between NIS 17,500 and NIS 30,000 and 16.1% earned from NIS 30,000 to NIS 60,000. Some 2% earned over NIS 60,000 a month before taxes.

These amounts, however, didn't include benefits totaling NIS 3.6 billion annually.

In contrast, the average wage in Israel in February was NIS 9,048, according to the Central Bureau of Statistics.

Perks enjoyed by bank employees include university tuition for themselves and their children, pre-school costs, subsidized loans, discounts on cultural events, enhanced health insurance coverage and other benefits enjoyed by very few other sectors of the economy.

The lion's share of perks goes to the veteran employees, which the Bank of Israel report termed "generation A, with the monetary value of the benefits reaching 50% of their gross pay. The overall compensation cost for the employees earning between NIS 17,500 and NIS 30,000 therefore totaled between NIS 26,000 and NIS 45,000 a month. For those earning NIS 30,000 to NIS 60,000 a month it reached NIS 45,000 to NIS 90,000 a month and for the upper 2% over NIS 90,000 a month.

"High rates of wage expenses characterize each of the five large banking groups," the Bank of Israel said. "In terms of cost per position at the banks over time, it turns out that over the past decade the nominal cost per position at banks rose by about 50% - a rate exceeding the pace at which the consumer price index rose during the same period of just approximately 30% on a cumulative basis."

Most of the increase was due to a clause in the collective labor agreement covering most veteran employees that entitles them to automatic annual raises of 5.8%. Just last month a labor dispute was declared at Israel Discount Bank after management insisted on excluding employees making over NIS 18,000 a month from receiving the automatic annual raise.

Compared with banks in countries belonging to the OECD (Organization for Economic Cooperation and Development ), 58.9% of Israeli banks' operational costs are attributable to personnel, as against an average of 46.9% for all OECD countries. The high ratio makes it difficult for Israeli banks to lower their fees and commissions, or to provide a higher rate of return for shareholders.

The report also showed how in 2004, after years during which compensation to senior bank officials hovered around NIS 2 million to NIS 3 million a year, it began jumping to over NIS 5 million a year. It showed how in 2008, when the banking system had close to 0% return on equity, compensation for senior bankers averaged NIS 4.2 million, barely suffering a dent despite the poor performance.

Zaken, the banks supervisor, also issued draft guidelines yesterday that were meant to dictate rules for the framework of compensation policy in the banking system. The commissioner expressed concern that the high ratio between the fixed component of compensation and the performance-based component could encourage banks to develop an appetite for taking on increased risks. The draft therefore calls on the compensation committees of the banks' boards of directors to establish in advance a maximum ratio between the fixed and variable components for the various groups of employees.

"The global financial crisis sharpened the understanding that improper compensation arrangements can encourage excessive risk-taking, particularly in the financial sector," Zaken said. "The current directive will preserve the ability to motivate employees, but will prevent a situation where the incentives given to an employee don't depend on performance or impel the employee to take excessive risks."

Dudu Bachar
Tomer Appelbaum