Bank of Israel Governor Defends Law to Cap Finance Chiefs' Pay

  • Flug says she supports establishment of salary norms
  • Israel's income gaps among highest in developed world

Bank of Israel Governor Karnit Flug said it’s important to establish salary norms in the country’s financial sector, days after parliament set new restrictions on pay for top finance executives.

“I hope the law won’t prompt the early retirement of key people at the banks all at once,” Flug said at a Jerusalem news conference on Sunday. “It’s preferable that such processes be gradual.”

Karnit Flug
Karnit Flug
Photographer: Ariel Jerozolimski/Bloomberg

Israel’s parliament enacted a law last week that in effect caps salaries at banks and other financial companies at 2.5 million shekels ($662,000). According to the law, they won’t be able to claim any amount above that as tax deductible.

Senior employees are likely to quit the industry to safeguard their retirement packages ahead of the law’s implementation, TheMarker reported on Sunday, without saying how it got the information. Zion Kenan of Bank Hapoalim Ltd. said on Thursday he will step down as chief executive officer of Israel’s largest lender in six months.

The nation’s banks are facing a regulatory overhaul which includes the prospects of forced divestitures and increased competition. Lawmakers enacted the salary legislation in response to public anger at income inequality that’s among the highest in developed nations.

The Tel Aviv Banking Index fell for a third day, declining 0.8 percent to 1,293.22, the lowest in nearly three weeks, at the close of trading in Tel Aviv.

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