BoI adopts standards that limit bank compensation

August 27, 2013 23:05

The new rules will limit bonuses to be no greater than actual salaries, with “exceptional cases” allowing a double bonus.

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Finance Minister Yair Lapid

Finance Minister Yair Lapid 370. (photo credit: REUTERS)

Supervisor of Banks David Zaken on Tuesday announced new rules to limit executive compensation in banks, which will bring Israel in line with the Basel III requirements set to hit Europe in 2014.

The new rules will limit bonuses to be no greater than actual salaries, with “exceptional cases” allowing a double bonus. Many financial executives earn the bulk of their salaries from hefty bonuses that far outweigh their official annual pay.

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The rules also ban compensation defined solely around completing a certain period of work, such as retention bonuses intended to keep employees on board for certain time, unless they are also linked to performance.

“These changes are intended to bring the method of compensation in the Israeli banking system in line with the most up-to-date international standards,” Zaken said. “These standards are intended to encourage the awarding of fair compensation that will encourage excellence, while preventing a situation where the incentives granted will encourage taking excessive risks and going beyond the bank’s risk appetite.”

Finance Minister Yair Lapid on Sunday used Facebook to speak out against bloated bank bonuses. In an upcoming Bank Leumi meeting, he wrote, shareholders “will be asked to approve for the 15 most senior employees of the ban, including the CEO and chairman of the board, salaries and bonuses of tens of millions of shekels. Normally, I firmly oppose any attempts to persecute the business sector. On the other hand, this is too much.”

In times when most Israelis are struggling to get by, Lapid wrote, bankers could not “continue operating as though the party is still going.”

The state holds 6 percent of Bank Leumi’s shares, which means Lapid may be able to influence the vote.

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