Some 215 top executives at Bank Hapoalim and Bank Leumi, Israel’s two biggest lenders, are at high risk of quitting over the new bank pay-cap law – a mass exodus that could buffet the country’s banking industry, Bank of Israel banks supervisor Hedva Ber warned Monday.
“An unplanned and widespread exit like this could expose the banks to risks and undermine their ability to make business decisions for the long term,” Ber said in a letter to Deputy Attorney General Avi Licht, asking him to issue a legal opinion on the matter.
At issue is whether the pay ceiling the Knesset approved in March applies to accumulated pension money. The cap, which applies to all financial institutions, limits compensation at 2.5 million shekels ($650,000) annually, but the law does not discuss pension payouts, which in many cases can amount to millions of shekels. The law goes into effect in October.
Israel’s smaller banks reportedly have few senior executives with pension payouts due them that would exceed the ceiling. But at Hapoalim and Leumi, management is concerned about the loss of executive talent.
Of the 215 executives cited by Ber, 39 at Hapoalim and 43 at Leumi were likely to quit in the next several months, she said. Two executives, Hapoalim CEO Zion Kenan and Leumi Vice President Danny Tsidon, have tendered their resignations in what is widely considered a response to the new law, though Tsidon is staying on as chairman of the bank’s Leumi Partners unit.
In the absence of a government decision, Israeli banks and insurance companies both filed suits earlier this month with the High Court of Justice seeking a clarification on the pension issue.
In the meantime, banks set aside 334 million shekels in their first-quarter balance sheets against possible resignations. Hapoalim took 167 million shekels, Leumi 117 million and Israel Discount Bank, the country’s third-largest lender, 50 million.
In a separate letter to the CEO and chairman of Israeli banks, Ber reiterated her concerns.
“The supervisor’s view about the banks is that unplanned departures of executives are likely to cause managerial shock at the banks and the loss of knowledge and experience, while influencing risk management and decision-making,” she said.
Ber said that the law was not aimed at harming the rights of executives and that the Bank of Israel, the Finance Ministry and Knesset lawmakers agreed on the principle, even if this has not been stated publicly.
In related news, Leumi this week began the process of laying off 700 employees as part of a cost-cutting program. The voluntary layoffs, which were announced last month, are part of a three-year program to cut staffing by 1,500 employees.
Employees being offered severance terms received a letter from the bank. “We acknowledge that a decision on layoffs isn’t an easy one,” the letter said. “Therefore, it was decided that you may receive personal consulting services and professional assistance in presenting you the program and the option being offered.”
The first 700 are due to be laid off by the end of the year at an estimated cost of 400 million shekels. Employees are being induced to take a buyout offer with generous severance pay of up to 270% the normal payout.
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