Israeli Bankers Quit Over Salary Cap

It’s a rule Occupy Wall Street could only dream about: Israel’s Knesset (parliament) passed a new law gently capping the annual salaries of bankers at 2.5 million shekels ($658,000).

But the dream has a nightmarish side. While in line with current public sentiment in Israel, the law has already prompted a few high-profile retirements. Some fear it will spark a wave of further retirements among banking executives, who fear losing pension rights that are calculated using an average of salaries over decades—and are worth millions of dollars.

Granted, it’s a “soft” cap, meaning earnings can surpass the cap, but the excess cannot be deducted from corporate taxes. According to the new law, effective in October, any banking sector salary above 2.5 million shekels a year—or 35 times the gross income (or 44 times net income) of the lowest paid worker or contractor—will incur both corporate and employee income taxes on the overage. The soft cap could be even lower if the bank employs contract workers earning the minimum wage of 5,000 shekels ($1,314) a month. The law was shepherded through the Knesset by the Finance minister, Moshe Kahlon, on a 56-0 vote.

“There is a moral significance beyond the economic significance in this law,” Kahlon said after the measure passed, adding that it symbolizes “consideration for the weak.”  “Someone who earns 100 times the average salary, and this worldview that only the strong survive and it’s every man for himself—that’s something I’m at war with.”

A few high-profile banker salaries caused a public outcry in Israel, where the average annual wage is 115,000 shekels—around $30,000. Rakefet Russak-Aminoach, the CEO of Bank Leumi, topped the banker earnings list with 8.13 million shekels ($2.1 million) in 2015. Zion Kenan, CEO of Bank Hapoalim was number two, earning 7.92 million shekels last year. CEOs and chairmen at other Israeli banks were paid between 5.56 million and 7.67 million shekels a year.

The first to resign was Kenan, at the end of March, after 38 years with Hapoalim. He was followed by Daniel Tsiddon, Leumi deputy CEO, who openly blamed the new law. Israeli supervisor of banks Hedva Ber said that up to 215 Hapoalim and Leumi executives might resign if the new law applies to past pension rights—which the banks say is not clear.

“We might find ourselves in a situation in which executives and officers leave en masse,” Ber told a conference in Tel Aviv.

The Association of Banks lost one appeal against the new law to the Israeli High Court, but are still pleading for a temporary injunction “to avoid a situation in which workers choose to resign just because of the fear that their rights upon retirement will be hurt if they wait until the appeal is decided.”