Bank Hapoalim (LSE: BKHD; TASE: POLI) chairman Shlomo Nehama and CEO Zvi Ziv will refund the bank NIS 26 million - two-thirds of the bonuses they received for 2005. Each man will repay NIS 13 million so that their 2005 bonuses will equal their bonuses for 2004. They will not make an actual repayment; the amounts will be deducted from the amounts to which they will be eligible in 2006-08.
The terms of the repayment were reached in a settlement in the derivative class action lawsuit filed against the bank for the bonuses paid to executives in 2005. The court has to approve the settlement.
After the settlement was announced, Nehama said, “The decision to forego was the result of dialogue with the Israel Securities Authority, and expresses the response by the bank’s management to the public outcry.”
Nonetheless, a letter by Nehama to the bank’s employees implies that he sees nothing wrong with the bonuses he received. “As a result of media reports, the public got the impression that the benefits paid to Bank Hapoalim’s executives were excessive, even though the benefits in no way deviated from the norms in Israeli public companies,” he wrote.
In addition to the lawsuit filed against the bank, the Securities Authority examined the procedures for approving executive compensation by the bank’s board of directors, and found many flaws. For example, during a discussion on salaries and bonuses, the directors were satisfied with the compensation formula used in previous years, and approved it automatically, without attempting to know the financial implications, which turned out to be especially high.
Another flaw was that, in line with practice in previous years, the board decided this year to send the decision relating to Nehama and Ziv to the bank’s general shareholders meeting for approval, as if Nehama and Ziv were not parties at interest in the bank, even though their salaries and compensation in 2005 were significantly higher than in previous years. Only a decision concerning the terms of bank vice chairman Dan Dankner were sent for a special majority vote by the general shareholders meeting.
For this reason, Dankner decided not to be a party in the settlement or return his share of the bonus. In contrast to the approval of the salary and bonus terms of Nehama and Ziv, Dankner’s terms were properly approved by the general shareholders meeting as a party at interest in the bank. The settlement stipulates that Dankner can become a party to it and agree to repay the bank NIS 7.5 million by March 2007.
Published by Globes [online], Israel business news - www.globes.co.il - on October 5, 2006
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