Israel becomes the latest market to approve legislation to require shareholder consent of compensation to companies’ senior executives.
As reported last month in Globes, an Israeli financial newspaper, the Israeli Knesset passed an amendment to the Companies Law (“Amendment 20 to the Companies Law”) that would compel companies to place up their executive compensation policies for shareholder vote every three years.
The amendment, which will go into effect January 1, 2013, also requires companies to establish a dedicated compensation committee that is composed entirely of independent and outside directors; currently, there is no independence requirement for this committee. This committee will be charged with formulating and implementing the policy, which will require the approval of a majority of shareholders excluding the controlling shareholders and their affiliates.
Companies are expected to demonstrate how their compensation policies account for both short-term goals and long-term objectives. Companies will have to disclose all aspects of the executives’ compensation and provide specific information about the various components of the compensation program, including performance criteria for variable remuneration and vesting details for any equity-related awards.
Policies will also need to feature a “clawback” provision, whereby executives would be required to return compensation that is awarded based on incorrect financial information or in the event of a breach of fiduciary duty.