Israel's Treasury Urges Leumi Execs to Halve Their Salaries

Officials 'expect' bank's CEO and chairman to comply with demand to keep their pay under $1 million a year.

Reuters

The Finance Ministry intends to take action to reduce executive salaries at banks, and thus Rakefet Russak-Aminoach, CEO at Bank Leumi, one of Israel’s two largest banks, would do well to forgo half her salary, Finance Ministry Accountant General Michal Abadi-Boiangiu told Russak-Aminoach last week.

Abadi-Boiangiu said she is recommending that Russak-Aminoach and Leumi chairman David Brodet reduce their salaries out of their own initiative can do that. Therefore, the Finance Ministry can only “recommend” such salary decisions at the moment.

However, treasury officials expect Leumi executives to comply, so that their salaries are in keeping with the banking sector legislation being put forward by the ministry that would cap salary costs at 3.5 million shekels ($1 million) a year.

In order to meet this cap, the Leumi executives would have to forgo some half of their salary and benefits.

Treasury officials consider the salary packages approved for Leumi executives in February to be outrageous, and have been addressing the matter for months through the state’s 6% holding in Leumi’s shares. The state holds the shares via a government company headed by Abadi-Boianjiu, and voted against the packages. However, they were approved by virtue of the pension funds that hold shares in the companies via the public’s savings, and are thus supposed to represent the public interest.

The salary packages would give Russak-Aminoach up to 7 million shekels a year, and Brodet up to 5.5 million shekels a year, for three years.

The treasury also tried to take on the salary agreement through its oversight over the pension funds, demanding that those who voted in favor of the salary packages hand the ministry the protocols from meetings where the decision was made.

Banking sector sources said that the finance ministry is pressuring the Leumi executives even though their salaries meet the regulatory standards set by the Bank of Israel.

The conversation between Russak-Aminoach and Abadi-Boianjium comes after the Finance Ministry canceled a working meeting with Leumi executives. Finance officials say this was not done as an added means of pressuring Leumi, but rather due to legal advice stating that finance officials could not meet with Leumi executives starting the moment the government decided to sell off the state’s share in the bank, and until the sale was completed. The recommendation added that this was due to concern that treasury officials could be exposed to insider information that could interfere with the sale.

During the meeting, which Finance Minister Yair Lapid was supposed to attend, Brodet was supposed to tell Finance Ministry officials about the bank’s negotiations with the U.S. Department of Justice regarding a U.S. investigation into suspicions that Leumi had helped American customers evade U.S. taxes. That investigation ended with Leumi agreeing to pay a 1 billion shekel fine, and without indictments against any Leumi officials.

This information would have been likely to have a significant impact on any sale of shares.