Bank Leumi Cancels CEO Hanan Friedman's Stock Options Following Bank of Israel Directive

Bank Leumi announced on Wednesday that it will not proceed with granting stock options to its CEO, Hanan Friedman, following a directive from the Bank of Israel. This decision coincides with the release of the bank's second-quarter financial results and follows discussions with the banking regulator. The Bank of Israel had issued a clarification last month instructing all banks not to link senior executives' variable compensation solely to the performance of a single subsidiary.

The directive was prompted by Leumi's unique compensation structure approved for Friedman, which was based on the performance of Leumi Partners, the bank's real investments arm. Under the approved plan, Friedman was to receive 854,700 non-tradable stock options valued at about one million shekels, tied directly to Leumi Partners' valuation. This allocation was to replace a portion of his fixed salary, complying with the financial sector's executive pay cap of approximately 3.5 million shekels annually.

The Bank of Israel's supervisory unit emphasized that variable compensation must reflect the broad responsibilities of the executive and align with the overall bank's goals, not just a single business line. The regulator expressed concern that linking pay to one subsidiary could encourage excessive risk-taking and divert management focus from the bank's overall stability and growth.

As a result of this binding interpretation, Leumi reversed its plan and will maintain Friedman's regular fixed salary without the stock option component. The bank clarified that this change will not affect his fixed compensation. The Bank of Israel's ruling, part of its banking management guidelines, applies immediately and without exemptions for existing agreements, aiming to prevent misaligned incentives in the banking sector.