Bank Leumi CEO Slams Senior Executive Pay Law as Harmful
Hanan Friedman, CEO of Bank Leumi, has publicly criticized Israel's Senior Executive Pay Law, calling it a "bad and harmful law" that is already hindering the recruitment of talent and will damage the country's financial system. In his first public remarks since his own potential bonus was canceled, Friedman stated that banks are already struggling to hire skilled employees and that some have moved their technology departments to separate companies to bypass salary restrictions.
Friedman acknowledged the "Jewish brain" for finding workarounds, such as issuing options through subsidiary companies, but argued that the law is based on populism and that the Israeli public ultimately pays the price. He was referring to a plan by Bank Leumi to grant him 850,000 unlisted options, valued at approximately 1 million shekels at the time of grant, as part of his compensation. This plan involved him forgoing some base salary and linking part of the reward to the performance of the bank's investment arm, not just the bank's stock price.
The bank aimed to provide Friedman with capital gains potential without exceeding the effective salary cost cap of 3.5 million shekels per year for a bank CEO. However, the Bank of Israel blocked this move last month, ruling that senior executive compensation should not be tied to the performance of specific internal operations, fearing it could distort decision-making.
Following the banking supervisor's position, Bank Leumi abandoned the option grant. Friedman's total compensation for the year amounted to 4.4 million shekels, including 3.7 million shekels in salary and the remainder for social security contributions and other benefits.
The Senior Executive Pay Law, enacted in 2016, applies to banks, insurance companies, and other financial institutions. It requires special approval for annual compensation exceeding 2.5 million shekels and disallows the excess amount as a tax deduction. It also limits compensation to no more than 35 times the salary of the lowest-paid employee. While not setting a uniform salary ceiling, it effectively creates a cost cap of around 3.5 million shekels in banks. The law's stated goal is to curb executive pay in institutions managing public funds and reduce the gap between management and employee salaries.
