The compensation plan of Bank Leumi (TASE: LUMI) CEO Rakefet Russak-Aminoach has come a long way before arriving at the current plan, announced yesterday, which awards her an annual salary of NIS 2.5 million. Three years ago, Bank Leumi published a compensation plan in which the maximum salary of the CEO was set at NIS 10.6 million. That was meant to be a modest plan in conformity with amendment 20 to the Companies Law, which stipulates that the board of directors must formulate a compensation plan and that the plan must be passed by a majority of the non-controlling shareholders in the company. The plan also included generous stock-based compensation for the bank's senior management of up to NIS 30 million.
Following the criticism of the compensation plan of Bank Leumi and of other banks, then Supervisor of Banks David Zaken ordered the banks to publish new plans. A few weeks later, Bank Leumi published a revised plan in which Russak-Aminoach's maximum salary was slashed to NIS 6.5 million. The criticism of bankers' pay continued, however, and now new and stricter legislation has cut her pay to NIS 2.5 million.
Leumi is the second bank to publish a compensation plan in the spirit of the law on executive pay in financial companies, under which pay in excess of NIS 2.5 million annually will not be recognized for tax purposes. But while Union Bank of Israel has set its CEO's maximum pay at NIS 2.5 million, the package is made up of both a fixed salary and a performance-related bonus. At Leumi, the entire NIS 2.5 million that Russak-Aninoach will receive will be in the form of salary, regardless of the bank's results.
This policy raises the question whether Bank Leumi's CEO will be motivated to achieve things for the bank when she is not rewarded for doing so. Furthermore, while other managers have targets set for receiving bonuses, these are easy and not especially challenging targets which, other than in very tough years, will probably mostly be attained.
If we add to that the fact that Bank Leumi has no controlling interest, meaning no owner who will put pressure on the management to achieve, then, on the face of it, Leumi's management has no motivation to lead the bank to exceptional results, but will mainly be concerned to maintain things as they are and not do damage so that they will not find themselves having to return those bonuses they manage to accumulate.
Published by Globes [online], Israel business news - www.globes-online.com - on September 27, 2016
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