The surprise announcement by Zion Kenan that he would step down in six months as CEO of Bank Hapoalim could be followed by scores of others in the finance sector after the Knesset approved last week a law capping their salaries.
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The legislation sets a pay cap for bankers and others in the financial services industry at 2.5 million shekels ($660,000) a year or 35 times the lowest salary at the institution, which lowers the ceiling even more.
Bankers like Kenan, whose cost of salary reached 7.9 million shekels last year, earn a lot more than the cap and are also entitled to big severance packages. Although he did not make mention of the new law, Kenan’s announcement came on the heels of the Knesset vote.
Whether there is an exodus of top executives at Israel’s banks, insurance companies and investment houses – at a cost of tens of millions of shekels and the loss of top talent – hinges on how the law is interpreted. Officials could decide that the law will honor severance rights that have been accrued over the years or that it caps them like regular pay at 2.5 million shekels.
If it occurs, the exodus could include scores of top financial-services executives, including the CEO’s of four of Israel’s top five banks.
In Kenan’s case, according to a Channel 10 television report over the weekend, the 60-year-old CEO is entitled to severance pay of no less than 17 million shekels. That’s because his contract awards him to 2.5 times his last monthly salary multiplied by the 38 years he worked at Hapoalim, so long as he steps down between ages 60-62, which would be the case if he keeps to his promise to leave this year.
After age 62, Kenan’s contract entitles him to a sum equal to his last monthly salary times his 38 years, which would amount to just 6.5 million shekels. However, when the new law is in effect he might be entitled to a mere 2.5 million shekels.
Kenan’s severance package is unusually large. The next largest payout belongs to Rakefet Russak-Aminoach as CEO of Bank Leumi, Israel’s second-largest lender. She joined the bank 12 years ago versus Kenan’s 38 at Hapoalim, would be entitled to 4.7 million shekels – two times her final monthly salary, which right now is 195,500 shekels, plus another six months’ bonus.
Eldad Fresher, the CEO at Mizrahi Tefahot Bank, right now stands to get 3.5 million shekels based on a severance agreement that gives him 1.5 times his monthly salary times his 12 years’ tenure at the bank, Israel’s fourth largest. Smadar Barber-Tsadik, CEO of No. 5 First International Bank of Israel, is entitled to 4 million, based on her 180,000-shekel monthly salary doubled, times 11 years’ tenure.
The only bank CEO not facing the dilemma is Lilach Asher-Topilsky, who also earns 180,000 shekels a month at Discount, Israel’s third-largest bank. She is also entitled to her monthly salary doubled plus six extra monthly salaries, but since she only joined Discount two years ago the total payout amounts to just 800,000 shekels, well under the ceiling.