Israel’s best-paid bank executives got a grace period from the High Court of Justice on Monday before they have to decide whether to retire early in order to enjoy the full value of their severance packages.
The injunction issued by Justice Yoram Danziger relates to the controversial law approved in March and due to go into effect on October 12, which sets a ceiling on compensation for bankers and insurance company executives at 2.5 million shekels ($644,000) a year. The order didn’t freeze the law itself, but only those parts relating to pension payouts.
The injunction came in response to a petition by the Banks Association and others, which sought clarification about the thorny issue of pension rights and whether the legislation applied retroactively. Those rights had been accumulated over the years and in many cases involve lump-sum payouts in excess of the annual ceiling.
The order was issued just a day before the final deadline for executives who planned to step down before the law goes into effect to inform their employers. Banking industry sources estimate that about 100 executives face the dilemma.
Danziger said the uncertainty surrounding the issue of pension rights and the fear of mass resignations that could undermine the banking sector justified the interim injunction.
“In light of the uncertainty and ambiguity that prevails with respect to the intention of the legislature in several significant points in the law, some banking system employees have already left their jobs, and others are considering resigning from the companies they have worked at for decades,” he wrote.
“The fear of resignations is real, and is also expressed by professionals in the country, headed by the supervisor of banks,” Danziger added.
His order gave executives 45 days to decide whether or not to resign from the date of the High Court’s decision or when the injunction is canceled.
The law aims to crack down on excessive pay in the financial-services sector. When it was approved by the Knesset in March, Bank Hapoalim CEO Zion Kenan announced he was leaving and Prof. Dan Tzidon, a Bank Leumi vice president, quit. In their first-quarter, Hapoalim set aside 167 million shekels and Leumi 117 million shekels, respectively, for severance payouts.
Danziger rejected claims by attorneys for the Knesset and the Finance Ministry, which had backed the pay-cap law, that the banks didn’t have to impose such an early deadline on executives resigning.
Finance Minister Moshe Kahlon, who initiated the pay-cap law, said he supported the injunction. “The state never had any intention of harming the accumulated rights of any bank employee. These are proprietary rights. The law’s goal is to impose ethical and moral norms,” he said.