Savings bank (pexels photo)
One of the interesting things brought to us by the Companies Law is the issue of executive compensation. In principle, the shareholders are the owners of the company and they are the ones who determine the salary of the CEO, the VP and in general the salary of all senior officers in the company as well as the general remuneration policy. For example, the owner of the company can determine that the salary for the CEO will be x and for the VP y and for any other senior executive the salary will not go through the mechanism he will determine.
But something interesting has been happening in recent years, and that is the increasing use of the mechanism enabled by the companies law, which is the over-ruling mechanism. That is, the compensation mechanism of the CEO/Chairman or both together was submitted to the General Assembly for approval. The shareholders (who own the company) decided not to approve their salary, at the current level. Apparently, this is where the matter ends. but no.
The Companies Act allows the issue to be returned to the board of directors and it convenes the compensation committee which can decide to approve the salary (which, let’s remember, was not approved by the shareholders) anyway. After this approval, the salary goes back to the approval of the board of directors which is supposed to hold a discussion and after that, if it approves then the salary will be paid legally, despite the objection of the shareholders.
Now let’s talk for a moment about the topic. This method is designed in principle to prevent a situation in which the shareholders do not fully understand the meaning of not approving a high salary for the CEO or alternatively there are among the shareholders who want not to approve the salary for reasons of their own that are not necessarily in the best interest of the company. This is where the board of directors can get into the thick of things and since it is the one who knows the company best, and it is the one who knows the CEO’s contribution the best – to do an act whose bottom line is a violation of the shareholders’ proprietary rights.
So much for the background: now let’s see what happened in the Israeli capital market in recent years. Let’s start with the case that made headlines and is the subject of compensation for the senior executives of the Poalim IBI underwriting company. The CEO, the VP and the legal advisor came and demanded a high salary, very high. Bank Hapoalim, which owns a large number of shares in the company, decided that the salary of the three office bearers was too high and after deducting the cost of their salary to the bank, there was not much left of the company’s profits.
The issue went overboard in the board of directors and was imposed on Bank Hapoalim Har Kagigit. Bank Hapoalim did not remain indebted and decided to disown the company and make it its financial holding, as opposed to a strategic/realistic holding which has a completely different meaning. What happened? Poalim IBI suffered a fatal blow from which it is still struggling to recover. But it is possible that she will recover from it and in any case here is a first case.
A second case is the Electra company, where the shareholders also refused to approve CEO Itamar Deutscher’s compensation in options for his work. And certainly not in the amount brought to their approval. And here, too, the board overrolled the shareholders.
A third case is the case of Kobi Haber in Direct Insurance (IDA) here too the company asked to raise his salary from NIS 303.7 thousand a month to a monthly salary of NIS 345.8 thousand. In addition, the company requested to change some of the conditions that would make the options received by the bar exercisable (vesting), i.e. The company granted Haber options that are supposed to mature as the return on capital reaches a certain level. The company requested that this condition be removed, so that in fact the variable capital compensation (options) will not be conditioned on the conditions decided upon when they were granted to Habar.
Now, it’s not worth going into the numbers in these cases because who can determine whether a salary of NIS 340,000 is appropriate or not, but given that the shareholders do not agree to changing the salary conditions and the board of directors imposes it on them like a tub, it would be better to exercise caution in this violation of their proprietary rights because Who are the shareholders? According to most of these, you use your pension, your provident funds, training and so on and here you should be much more careful. This is not “anyone’s” money, these are people’s pensions.
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