Bank of Israel Nixes Banker Bonuses

According to the directive, executives’ annual bonuses may no longer exceed their annual salary, though exceptions can be made up to double their salary in special cases and with the approval of shareholders.

In this way, the BOI aims to put a stop to the popular accounting trick whereby executives receive relatively “low” salaries of NIS 150,000-200,000 a month, but an annual bonus that is double, triple, or even quadruple this amount. The Bank of Israel deems this improper and corrupting, though not illegal. Executives, it is said, sometimes make wrong decisions because they are thinking more about their annual bonuses than the fiscal matters at hand.

The measure comes after similar measures by EU member states, which have capped the bonuses of bank executives.

In its directive, the Bank of Israel said, “The guidelines in the draft are in line with the development among regulatory authorities around the world, which has gained strength following the global financial crisis, and which holds that compensation is an important element of risk management and proper corporate governance at financial institutions. These guidelines are intended to strengthen the control mechanisms and ensure that compensation arrangements are consistent with the long-term goals of the financial institution.”

This article appeared in print on page 24 of the August 28th, 2013 edition of Hamodia.