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The Supervisor of Banks, David Zaken, published today the final version of a new Proper Conduct of Banking Business Directive regarding compensation policy at banking corporations. A draft version of the directive was issued on August 27, 2013. The directive adopts current international guidelines on the issue, including the principles of the European Directive on Compensation at Banks, adjusted for Israel. The Supervisor’s directive establishes, among other things, that variable compensation shall not be greater than—excluding exceptional cases—100 percent of fixed compensation. The Supervisor explained that the goal of the directive is to ensure that the system of incentives in the banking system supports fair compensation, which provides incentives for attaining excellence but does not support taking undue risks. The Supervisor emphasized as well that the directive is in line with the trend among supervisory authorities worldwide, in which the issue of compensation is an important pillar in the risk management framework and proper corporate governance at banks. The directive is intended to strengthen the control mechanisms at banking corporations and to guarantee that compensation arrangements are consistent with their long term goals.
Minister of Finance Yair Lapid said, “Care should be taken that salaries in the banking system are fair and responsible. Executive salary needs to be at norms similar to those in advanced economies. Alongside dealing with executive salaries in the banking system, we will work toward these norms being expanded to other sectors.”
Governor of the Bank of Israel Dr. Karnit Flug said, “a fair and reasonable compensation policy, which does not support taking unnecessary risks and which strengthens the public’s trust in banks, is an important pillar in the stability of the banking and financial systems.”