Outdated Rule Cuts External Directors’ Pay by 40% for Zoom Meetings, Calls for Reform Grow

Since 2000, Israeli regulations have mandated that external directors (DCH"Ts) receive only 60% of their usual meeting fee if attending board meetings via remote communication, such as Zoom. This rule, established long before the COVID-19 pandemic, has become increasingly problematic as virtual meetings have become the norm in the business world. Despite the shift to online meetings, the 40% pay reduction remains in place, creating an unfair financial penalty for directors who bear the same responsibilities regardless of meeting format.

External directors play a critical role as gatekeepers for public investors, tasked with reviewing extensive materials, asking tough questions, opposing decisions when necessary, and carrying significant legal liability. The current rule does not reflect this reality, as no regulatory body or court would consider a director’s duty of care diminished simply because they participated remotely. Moreover, companies themselves often decide the meeting format, incentivizing them to hold more meetings online to reduce director compensation costs.

This situation undermines the independence of external directors, whose remuneration should be consistent and not influenced by whether they attend in person or online. While concerns about director engagement during virtual meetings are valid, automatic pay cuts are not an appropriate solution. The quality of a director’s work depends on their involvement and judgment, not physical presence.

The Israeli Ministry of Justice acknowledges the need to review and update these outdated regulations to better suit the modern era. However, until formal amendments are enacted, the existing rules will continue to unfairly reduce external directors’ compensation and potentially harm corporate governance standards.