600 Hapoalim Staff Face Early Pensions

Voluntary retirement plan could cost up to NIS 360 million

The management of Bank Hapoalim is considering the implementation of a voluntary retirement plan for some 600 employees at the financial institution. The plan will focus on the bank's general staff units, at which around 400 posts will be cut. The bank's remaining units will do away with some 200 positions, based on a streamlining program stemming from Hapoalim's merger with Bank Mishkan.

The main problem with the plan is its cost. Previous retirement programs implemented by Hapoalim involved awarding employees compensation to the tune of up to 300 percent of the sums accumulated in their severance pay funds, with the bank ending up paying NIS 500,000-600,000 on average to each retiring worker.

In other words, to go ahead with a plan for the retirement of 600 employees, Hapoalim would have to spend some NIS 360 million. At present, however, in light of its low return on capital, which stands at 9.04 percent (very close to the minimum determined by the bank of Israel), Hapoalim is unable to shoulder such an expense. But the bank's management is expected to come up with solutions to facilitate implementation of the plan.

In any event, during the discussions currently underway at the bank, it has been decided that the planned retirement program will not be as generous as the previous ones. In principle, Hapoalim's management has decided that each retirement plan will be less generous than its predecessor so as to discourage employees from putting off their retirements in an effort to secure more attractive terms.

During the period 1998-1999, Hapoalim implemented two retirement plans. In 1998, 350 employees willingly chose to leave the bank, costing Hapoalim some NIS 204 million (NIS 583,000 per employee). The retirement plan of 1999 involved 402 employees and cost Hapoalim NIS 200 million (NIS 497,000 per employee). The difference between the average cost in each of the plans stemmed from the inferior conditions of the second plan, as well as the make-up of the retiring workers in terms of length of employment and ranking.

A prospectus released yesterday by the bank notes that Hapoalim's streamlining and cost-saving process is expected to continue throughout next year as well. In light of the worsening economic situation and the deterioration in the bank's financial results, Hapoalim's controling shareholders and directors are calling for the implementation of more stringent streamlining processes than in the past.

The steps under consideration include: a reduction in business alliances with outside suppliers, the selling off of non-profitable investments and the retirement plan.

If Hapoalim's offer to purchase the stock of Mishkan goes well, the two banks will implement a merger plan that will allow for a reduction of a further 200 employees. in this case, too, implementation of the plan will depend on Hapoalim's capital ratios.

The Bank Hapoalim Group employs 12,920 workers, 9,783 of whom are bank employees. The average worker at the bank is aged 43.6 and has been at Hapoalim for 16.4 years. The average wage cost at the bank in 2000 amounted to NIS 243,000.