Government Tells Banks: Salary Cap Stays On

The Israeli government defended the recently passed law limiting executive compensation against claims by banks and insurance companies that it impinges on free market rights. The state did concede, however, that the law should not be construed to deprive anyone of accumulated pension rights, according to Globes on Tuesday.

The State Attorney’s Office rejected the arguments to roll back the law, which sets a ceiling on salaries recognized for tax purposes of the highest paid employee to 35 times that of the lowest paid in a company.

The state said that any impairment of freedom of occupation and freedom of contract, as cited by the petitioners, are not such as to justify rescinding or revising the law.

Furthermore, the state attorneys pointed out, the financial institutions can elevate compensation for their top executives within the framework of the new law by bringing up the company’s minimum salaries. They cited the example of insurance company Harel, which raised the lowest salary in the company to NIS 6,000, higher than the legal minimum.

Regarding pensions, the report endorsed a proposal by Deputy Attorney General Avi Licht for excluding rights accumulated in the past from the provisions of the law.

Failure to recognize those rights could have serious consequences for the industry. At Bank Hapoalim and Bank Leumi, the two biggest in Israel, it has been estimated that as many as 215 personnel are likely to quit if the law is applied to pension rights accumulated to date.

Supervisor of Banks Hedva Ber has warned that if this were to occur, the entire system could be severely disrupted.

It appears unlikely to come to that, though, since everyone involved in creating the law on executive pay, from Minister of Finance Moshe Kahlon down, has said that there was no intention to touch the pension rights of managers at the banks.