Bank Leumi CEO Drops Stock Options After Regulator Ban on Subsidiary-Based Bonuses

Bank Leumi announced alongside its Q2 financial results that it decided not to grant stock options in its investment arm Leumi Partners to CEO Hanan Friedman. This decision follows a directive from the Bank of Israel last month prohibiting banks from linking senior executives' compensation to the performance of a single subsidiary. The unique compensation structure approved for Friedman in April, which tied his bonus to Leumi Partners' results, directly prompted the regulator's intervention.

The canceled plan involved allocating 854,700 stock options linked to Leumi Partners' valuation in exchange for Friedman foregoing a base salary worth about one million shekels at the time of grant. The Bank of Israel explicitly ruled that a CEO cannot be rewarded based on one subsidiary's performance, especially when the options' future value could rise significantly. This regulatory stance reflects a broader management principle: executives should be compensated for their overall responsibilities, not just the most exciting parts of their business.

Leumi's core banking operations, centered on deposits and credit, have generated record profits without relying on high-risk or high-drama deals. The bank's financial results demonstrate that its foundational banking business is a sophisticated and powerful money-making engine that does not require thrills to justify executive pay. Although the bank's withdrawal from the equity-based incentive plan is a concession to the regulator, it underscores that steady, traditional banking remains the most valuable and reliable business segment.

Leumi's move signals a return to conventional salary terms for its CEO and a recognition that the bank's strength lies in its core operations rather than in the excitement of investment deals. The bank does not apologize for the perceived dullness of its main business, which continues to be highly profitable and stable.