El Al’s Creative Math & Loss Of Majority Shareholder

It’s probably best to start this post with the two questions you’ll have at the end of this post

1) How does an airline not notice it is overpaying its CEO US$4,700,000 in bonuses over four years?

2) Why does an airline think its Board of Director’s insurance company should repay US$1,000,000 of that back to the airline?

Well now with the head scratching questions out of the way … let’s dive into this odd story.

A week ago El Al Israel Airline’s majority shareholder, Israel Borovich, was forced from his role in the airline by the Israeli Securities Authority, in regard to unexplained discrepancies in the payment of bonuses to the airlines’ former CEO,  Haim Romano, between 2005 and 2009.

When Romano was named CEO of El Al in February 2005 his annual bonuses were tied to the net profits of the airline, however in March 2005 Romano’s bonus agreement was changed to reflect the airline’s revenue, before taxes, interest, amortization and depreciation.  This change in Romano’s bonus pay structure was done without the approval of the airline’s Board of Directors, but likely with the knowledge of Borovich, and resulted in Romano receiving significant bonuses in years when the airline posted net losses.

Based on El Al’s financial performance, while Romano was the CEO, he should have received US$800,000 in bonuses between 2005 and 2009. Instead of US$800,000, between 2005 and 2009, Romano received US$5,500,000.   Somehow the airlines’ accountants and Board of Directors failed to notice the excess bonuses the CEO was being paid based on the change of bonus agreement.

Following the Israel Securities Authorities report that states Romano received bonuses based on a pay structure that was “never discussed or legal approved by the company,” the airlines’ majority shareholder Israel Borovich resigned from El Al’s Board of Directors.

With Romano no longer CEO of El Al and Borovich no longer on the Board of Directors, El Al has retroactively approved the majority of the excess bonus payments and believes the Board of Directors insurance company should repay El Al US$1,000,000.

Normally when a CEO takes millions of dollars from a company they didn’t earn they are brought to trial, rather than having those ill-gotten-gains retroactively approved, followed by the Board of Directors requesting that a portion of the funds be covered by their insurance.

This probably isn’t the end of this story …

Happy Flying!


  1. The fact is the CEO *did* earn his bonus in accordance to his (revised) bonus agreement – hardly ill-gotten. One may take issue with growing compensation in light of declining income or the revision of said agreement, but it’s unlikely he can unilaterally change it.

    The amendment of the bonus calculation may not have been done with the express consent by the Board, but practically (not legally), it’s hardly a big deal. If Borovich is indeed the majority shareholder, CEO payment is ultimately at his discretion.

  2. According to Israel’s securities authority the change in terms without board approval…including the Chairman not signing off…makes it illegal.

    The airline seeking it’s insurance company to cover US$1mil is also unusual.

    I don’t think this is done yet in terms of Israel’s legal system.

    Happy Flying!


  3. Note that the securities authority also fined El-Al 1.5 million shekel (about US$425,000), and demanded that the board either approve the excess or get the money back; I’m guessing that the either/or clause is intended to bring the company back into compliance with regulations. El-Al agreed to pay the fine immediately. I don’t know what the consequences are for not complying with the second demand, but it may be that retroactively approving the bonus terms is more practical.

    As for the insurance, the Israeli press calls it something like “insurance of managers’ responsibility”. I’ve never heard this term before, but maybe it’s intended to cover the consequences of managers running away with money…

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