June 13--Supervisor of Capital Markets, Insurance and Savings Department at the Ministry of Finance Dorit Salinger is continuing her efforts and the efforts of ministry heads to make clear and bring home the growing dissatisfaction that she and Minister of Finance Yair Lapid share over what they view as overly generous compensation packages that have been approved for senior executives at large financial institutions. Today, Salinger sent a letter to the financial institutions she oversees that approved Mizrahi Tefahot CEO Eldad Fresher'sNIS 6.3 million salary package at the general shareholders' meeting that took place earlier this week.
In the letter, Salinger demands that the financial institutions that manage the public's long-term savings should "detail the decision making process regarding their votes, including internal analyses, with supporting documentation attached," as well as protocols of discussions on the matter and supplementary materials that were provided to investment committee members to help them reach a decision.
In addition, Salinger is demanding of the financial bodies that approved Fresher's employment terms that they should state whether the way they would vote was considered in the light of the draft bill recently issued by the Ministry of Finance on the restriction of excessive salary expenses (setting a salary-cost cap of NIS 3.5 million annually, over which salary expenses will not be tax deductible). This draft legislation is not yet binding, but the Ministry of Finance has made it clear that it expects the financial institutions to take it into consideration when making voting decisions on compensation packages for bank or insurance company managers, despite the fact that the law has not yet been approved.
The financial institutions were asked to submit their responses about the approval of Fresher's salary by June 17. However, a source within a financial institution with whom we spoke was outspoken in his criticism of the Ministry of Finance's handling of the matter. "Fresher's compensation has been through a number of hurdles, from the supervisor of banks and from Entropy, and was examined by the financial institutions. Now the commissioner comes along, as though she is a court of appeals for all these parties, when one of them is a regulator just like her."
Earlier this week, Fresher's salary package at Mizrahi Tefahot was approved by a majority of more than 73%, with only 8.4% of shareholders voting against it. Fresher's salary package includes compensation reaching NIS 6.4 million, of which NIS 3.3 million is salary cost, and another NIS 3 million is in bonus and share-based payments.
This is not the only financial sector senior management salary scandal that has ruffled feathers at the Ministry of Finance of late. The last incident was when The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) requested approval to pay its CEO, Eyal Lapidot, a maximum salary of NIS 10 million a year, which could have amounted to NIS 41.4 million in the years 2014-2017.
Following the uproar over Lapidot's salary, when The Phoenix board members even went to the regulator's office in order to explain their decision, the matter of Lapidot's compensation returned to the board, and is still being discussed. It seems that next week it will become clear in what manner the Phoneix board of directors will change the CEOs compensation, and by how much.
Unlike in the case of The Phoenix and Lapidot -- where the Ministry of Finance succeeded in reopening the discussion -- in Fresher's case, Lapid has no statutory authority to use the same procedures. This is because the Bank of Israel is responsible for regulating the banks.
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