Leumi CEO attacks executive pay law as “bad and harmful”
Hanan Friedman says restrictions on senior executive compensation are already making it harder for banks to recruit talent and could ultimately damage Israel’s financial system. His comments come after Leumi abandoned a plan to compensate him partly through options following opposition from the Bank of Israel.
Bank Leumi CEO Hanan Friedman on Wednesday sharply criticized the law limiting compensation for senior executives at financial institutions, calling it a “bad and harmful law” that is already making it harder for banks to recruit talent and could ultimately hurt Israel’s financial system.
“It will soon harm the financial system in Israel. It is already difficult to recruit talent in the various professions within the bank. At a significant number of banks, the technology sector has been outsourced to subsidiaries because it is impossible to limit salaries there. This will reach other places,” Friedman said at the Companies Association conference held today at the Tel Aviv Stock Exchange.
Friedman also referred to efforts by financial institutions to find ways around the restrictions imposed by the law. “The Jewish mind knows how to invent patents,” he said. “But these are populist laws, and the one who pays the price is the Israeli public.”
His comments come about two months after Bank Leumi sought to increase Friedman’s potential compensation through an equity component while remaining within the restrictions of the Executive Compensation Law. Under the plan approved by shareholders, Friedman would have given up part of his base salary and received 850,000 non-tradable options instead, with a fair value of about NIS 1 million at the time of the grant.
Part of the proposed compensation was to be linked to the increase in the value of Leumi Partners, the bank’s investment arm, rather than solely to the performance of Leumi’s stock. The arrangement was intended to create the potential for a capital gain for Friedman without exceeding the salary-cost ceiling applicable to the bank’s CEO, which at the time stood at approximately NIS 3.5 million a year.
The move was halted last month after the Bank of Israel determined that a senior manager’s compensation should not be tied to the performance of a specific business activity within the bank, out of concern that doing so could distort the manager’s judgment. Following the position of the Banking Supervision Department, Leumi abandoned the options allocation.
In practice, Friedman’s total salary cost amounted to NIS 4.4 million. Of that amount, NIS 3.7 million was salary, with the remainder consisting of social security contributions and other compensation.
The Senior Financial Corporations Compensation Law, enacted in 2016, applies to banks, insurance companies and other financial institutions. The law stipulates that annual compensation exceeding NIS 2.5 million is subject to a special approval process involving the compensation committee, board of directors and shareholders’ meeting. At the same time, compensation above the threshold is not recognized by the corporation as an expense for tax purposes.
The law also prohibits approving compensation that is more than 35 times the salary of the corporation’s lowest-paid employee, including employees of contractors. As a result, the law does not impose a single nominal salary ceiling on all senior executives. In banks, however, it effectively creates a salary-cost ceiling of approximately NIS 3.5 million.
The legislation was intended to curb compensation for senior executives at institutions that manage public funds and reduce the gap between management pay and employee salaries.
