Ten years have gone by since El Al was privatized via the Tel Aviv Stock Exchange, and given its poor results, its worsening financial position, and its collapsing share price, the question arises, where have the owners been all this time? If not in connection to the company's performance, at least in connection to the compensation of its senior managers?
In the past few days, when El Al has been warning that it might go under following the government's approval of the Open Skies agreement with the EU, many have pointed to the fact that even after it passed into private hands (Knafaim Holdings Ltd. (TASE: KNFM), controlled by the Borovich family), it remained with the DNA of a cumbersome, inefficient state-owned company.
That's true of course, but it's worth mentioning that in at least one respect, pay and benefits for its managers, El Al has become a flag bearer for the private sector. "Globes" checked and found that in the years 2005-2012, in most of which it posted losses, El Al's five highest paid managers received an aggregate NIS 125 million, or more than NIS 15 million a year on average.
And although El Al's results are largely affected by factors unconnected to its day to day management (the price of jet-fuel, the shekel-dollar exchange rate, the security situation), the airline has over the years paid its managers compensation to a large extent based on a cash bonus derived from its results.
The company's hired CEOs Haim Romano and his replacement Elyezer Shkedy in this way accumulated compensation costing some NIS 60 million over the past eight years, despite the tepid (to put it delicately) business performance of El Al under their management. In this period, the company's share price fell 85%.
Romano, currently CEO of Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), enjoyed an employment contract at El Al that included a bonus deriving from the company's EBITDA, ie, earnings before interest, tax, depreciation and amortization. As a result, he received fat bonuses even in years that El Al posted losses, and altogether the cost of employing him was nearly NIS 40 million in the five years that he headed the company.
The wretched experience with Romano did not prevent El Al's board of directors from approving a generous employment agreement with his successor, Shkedy. The former commander of the Israel Air Force, who came to El Al with no experience of management in a civilian environment, is entitled, under the terms of his employment, to a bonus of 2% of net profit before tax, an agreement that yielded him a salary costing NIS 16.8 million in his first year at the company (part of which Shkedy has paid back).
In fact, El Al posted its highest post-privatization profit in 2003, the year in which it made its offering on the stock exchange, and was still run as a government company. The salary cost of its five highest paid managers in that year totaled just NIS 3 million. By the following year, in which it posted a heavy loss of NIS 19 million, the salary cost of the five highest paid managers totaled more than NIS 8 million.
Published by Globes [online], Israel business news - www.globes-online.com - on April 24, 2013
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