Union Bank of Israel (TASE: UNON) has presented the first example of the new standards in bank executive pay. The bank, controlled by the Landau family, has recently published a new executive pay plan, which the shareholders' meeting will be asked to approve in early October. Sources in the banking system estimate that this plan will serve as a benchmark for other pay plans, which will be published by the banks in the near future, as the time in which the law comes into effect draws near.
Furthermore, the bank has announced that the salary of Chairman Zeev Abeles will be adjusted to the restrictions of the salary cap law and the Bank of Israel's directive that bank chairman's will not receive bonuses. As a result, starting in October, Abeles's annual salary will be NIS 2.49 million.
The previous pay plan was formed in February 2014, for the next three years. The bank has stated that since these three years draw to a close and due to the change in regulation in the field, they have decided to present a new plan. "Globes" found that there are several significant changes from the previous plan, mainly a decrease in the volume of bonuses for bank executives, while the conditions for the provision of bonuses were made more flexible. In the previous plan, the maximum bonus for the chairman and the CEO Israel Trau equaled nine monthly salaries; according to the new plan, the chairman will not be able to receive a bonus at all (in accordance with the Bank of Israel directives prohibiting a variable pay for bank chairmen), while the CEO's maximum bonus will be cut to half, to 4.5 salaries.
The decrease in the volume of bonuses also affects others functionaries. However, in the previous plan the bonus was subject to an offsetting mechanism; in years with weak financial results, the bonus accumulated during strong years was cut. In contrast, in the new plan a dividend of up 40% of the regular salary will be paid immediately; as for higher bonuses, half of them will be paid in cash, and the rest will be rescheduled over three years. In addition, offsetting with weaker years was cancelled. In case the bank will have weaker results in the next few years (a return on capital of less than 2%) the bonus will not paid, but it will not be cancelled and payment will be delayed to a year with better results. It will be paid if the bank's return on capital is higher than 2%, or be delayed to the next year, but not reduced.
Nevertheless, this plan does have a mechanism for the retroactive return of bonuses. In cases of exceptional damage, such as harm exceeding 3% of equity, fraud, or intentional inappropriate behavior, the bank could demand the retroactive return of bonuses for five years (and even seven years in special cases).
The plan does not demand the return of small bonuses, less than one sixth of the annual payment. This clause was due the Bank of Israel's demand that in unusual cases executives will return bonuses. The demand followed from the affair in which Bank Leumi (TASE: LUMI) helped US clients to evade taxes, which resulted in the bank paying exorbitant fines and former executives being required to return bonuses received in the preceding years.
More flexibility
The parameter according to which the bonuses are provided seems to have also become more lenient, with the board having greater flexibility in determining the volume of the bonus. Compared with the previous plan, which regarded the bank's overall achievements, the parameters here are more personal. In parallel to this plan, the bank also published the bonus plan for Abeles. As mentioned, the plan had been formed according to the Bank of Israel directives regarding chairman salaries, and mainly revolves around revoking the possibility of receiving a bonus.
As part of the new contract, Abeles' appointment percentage will increase from 75% to 100%, while his salary will slightly decrease from NIS 172,000 to 170,000; he will also not be eligible for a bonus.
Moreover, the volume of severance pay he accumulates after the contract comes into effect will be 100% rather than 200%, as was the case so far. Abeles' overall salary will be NIS 2.49 million, similarly to the cap defined in the executive pay law. Abeles has been Union Bank's chairman for 16 years, during which he has accumulated a salary costing NIS 44.2 for heading Israel's sixth largest bank. Abeles (69) is an accountant by profession, and served as the banking regulator in the past.
Published by Globes [online], Israel business news - www.globes-online.com - on September 12, 2016
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