Israeli High Court Rejects Bankers' Motion Against Pay Caps

A new law sets a $665,000 annual ceiling on executive pay in the financial services industry, or no more than 35 times the lowest pay at a firm.

Leumi CEO Rakefet Russak-Aminoach and Chairman David Brodet present the bank's 2015 report.
Ofer Vaknin

The High Court of Justice has rejected a petition by bankers and insurers against a new law curbing their salaries, saying the controversial legislation was neither “illegitimate nor illegal.”

The court, however, said Thursday that agreements on pension and severance pay that predated the law, which was approved in March and goes into effect next month, need not be changed.

The law sets an annual ceiling of 2.5 million shekels ($666,000) on executive pay in the financial services industry, or no more than 35 times the lowest pay at a firm.

“It is not the court’s place to rule on claims against the wisdom of the law, or its morality or whether it is just,” only whether it is legal, Supreme Court President Miriam Naor wrote.

“It is the legislator’s view that social gaps have to be narrowed,” she noted, adding that these gaps were reflected in part in money managers' giant salaries.

The law was approved by the Knesset, with the Finance Ministry’s backing, amid public protests against excessive pay for top executives in the financial services industry. But the law stirred concerns about an exodus of talent, especially if executives’ pension payouts were affected.

Earlier this week, Bank Leumi, Israel’s second-largest lender after Bank Hapoalim, approved pay cuts for its chief executive and chairman that put them under the 2.5-million-shekel ceiling. On Wednesday, Israel Discount Bank, the third largest lender, did the same.

Naor noted bankers’ and insurers’ opinion that talented people should not see their salaries curbed, but she said it was not for the court to meddle with legislation if it was legal and adhered to the Basic Law on Human Dignity and Liberty.

She said the petitioners’ ideas for alternatives to the law were strictly issues of economic policy. According to Naor, the law does not prevent senior employees from seeking work; it does impinge on their freedom of occupation, but indirectly and mildly, she said.

The petitioners failed to prove that capping executive pay at 35 times the lowest pay at a company would hamper financial firms from recruiting talent, Naor wrote.

Originally, bankers and insurers each filed their own High Court petitions against the law, but the court merged the two. The legislation had been crafted under the previous finance minister, Yair Lapid, who set the maximum at 3.5 million shekels.

His successor, Moshe Kahlon, lowered it to 2.5 million. The bankers sued after the deputy attorney general, Avi Licht, declined to rule that pension rights could be left outside the law.

After the law was approved, Bank Hapoalim’s CEO and deputy CEO announced their resignations, as did Leumi’s deputy CEO.

On Thursday, MK Shelly Yacimovich (Zionist Union) applauded the court’s decision, saying the law adhered to the country’s values.