For the first time, the excess salaries at Israel Electric Corporation (IEC) (TASE: ELEC.B22) have been disclosed in full. Employees receive special supplements, general overtime, guaranteed pensions, holiday gifts, and most of all - free electricity. Sources in the government regulatory team overseeing IEC's operations told "Globes" that the excess salaries to IEC employees and pensions, which were not approved by the Ministry of Finance, amount to NIS 300-400 million a year.
Sources inform ''Globes'' that IEC initiated the move that resulted in the exposing of the excess salaries at the government company. After a technical problem was found during the approval process of the financial reports, IEC's management asked the regulatory team for a sweeping approval of its salary contracts.
The regulatory team is divided about how to respond to the discovery, because they are afraid that it will cause a confrontation with IEC's workers committee, just as the committee is about to play a key role in the company's restructuring.
Some of the excess salaries are anchored in old labor contracts, and probably cannot be changed now. IEC also pays general overtime according to a three-tier system of 35, 50, and 70 hours a month, even as employees in practice only work one extra hour per day, or 20 hours overtime per month. Worse, the overtime is recognized as base salary for executives for the purpose of calculating their pensions.
A command supplement, designated solely for managers, is also awarded indiscriminately to rank and file employees, such as engineers. The regulatory team also discovered a guaranteed minimum budgeted pension, a benefit that exists nowhere else in the public sector. The benefit means that any employee with ten years seniority is eligible for a pension supplement of at least 40%.
Widows of IEC employees with fewer than five years at the company are eligible for 42% of their pay until they die. IEC also pays severance compensation to fired employees on top of their budgeted pension, resulting in a duplicate benefit.
The regulatory team found that IEC's most notorious benefit - free electricity for employees - currently costs NIS 2 billion. The money for this benefit is transferred to a special trust fund over which the company has no control. The result is that IEC employees and pensioners will receive free electricity for the rest of their lives, even in the theoretical case of IEC going bankrupt.
IEC also pays the tax on the gross of the employees' benefits, with the result that the employees in practice pay no tax at all.
An especially interesting fact is how this Pandora's box was opened in the first place. Sources inform ''Globes'' that, on August 1, IEC asked the regulatory team to approve carte blanche all IEC salary contracts and job terms. IEC said that this was necessary due to a problem in the company's financial report. The auditor warned that there was a "material weakness" in the report because most of the salary agreements were unauthorized, so the auditor could not refer to them.
The regulatory team examined the contacts and discovered the irregularities. They sent a letter with tough questions about how IEC reached these unauthorized salary agreements and job terms. IEC asked not to touch its existing agreements.
A source at IEC told "Globes", "We have not received any complaints from the government about illegal salary supplements. It is true that IEC has salary supplements that are not the norm in the public sector, but they are considered legal - so long as the director of wages approved them, or if they were approved before 1985. Benefits such as free electricity were granted back in the 1920s, so even if you don’t like them, they are legal."
IEC said in response, "The company operates on the basis of applicable work agreements, which were formulated over decades of operations. The work agreements are partly unique to IEC (which is a separate entity form the civil service), similar to the situation at other government companies, so there is no overlap, for better or worse, between them and the civil service agreements.
"In the past two years, IEC has considered, in consultation with an external law firm, the validity of all material salary items currently paid to its employees and pensioners, and it has legal opinions that contend that the company is legally required to continue paying these items. These opinions have been sent to the Director of Wages and the Government Companies Authority, in accordance with a decision by the board of directors.
"As a government company, IEC is subject to oversight by several regulators. The regulatory team appointed by the government for oversight and monitoring the pension arrangements and other issues has received all information, data, and explanations that it requested from the company. The company has never received any remarks or indications implying any claim of alleged excessive salaries."
Published by Globes [online], Israel business news - www.globes-online.com - on October 26, 2011
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