Fat-cat salaries

In Sunday’s referendum, more than two-thirds of Swiss voters approved a proposal against fat-cat salaries. They empowered shareholders to veto egregious remuneration and ban scandalous bonuses, including the notorious golden parachute.

By coincidence, Israeli regulations too were recently amended, requiring public-sector and publicly traded corporations to formulate pay policy for their highestranking executives.

The bottom line of the complex legal phraseology, though, is disappointing. The power to decide on an Israeli firm’s top financial rewards remains with the board of directors and is not transferred to shareholders. Curbs on multi-million payouts are more theoretical than real. They are in no way as tough or as revolutionary as the new Swiss rules.

Switzerland, it must be stressed, is one of the world’s most pro-business economies and by no stretch of the imagination a radical stronghold. Yet it dared venture much further against corporate greed than most Western countries, Israel among them.

Israel’s amended regulations, in fact, came into being not so much to restrain outrageous payouts as to counter legislative initiatives last year. The government scuttled a bill that aimed to cap whopping executive paychecks. Decried as populist, it was the pet project of two seasoned warriors against the moneyed elites – MKs Shelly Yacimovich (Labor) and Haim Katz (Likud).

But widening income gaps are no longer a marginal concern for doctrinaire ideologues. A sense of how immensely the gaps have widened can be gleaned from the failed bill, which sought to insure that any firm’s highest earner would not be paid more than 50-fold what the lowest earner gets. Under no criteria can this ratio be described as too constricting. If a company’s lowest wage is NIS 4,000, the top monthly pay could not exceed NIS 200,000 – still a figure few of us are ever likely to attain.

If the top executives nevertheless hanker for more, they could increase wages at the bottom of the corporate hierarchy – since the bill linked the highest and lowest wages – and then pay themselves 50 times the raised minimum.

Transparency was also mandated. Stringent reporting requirements were to apply to all publicly traded companies, whereby they were obliged to disclose the compensation paid to their top executives.

To the vast majority of Israelis this did not sound unjust, but it was used to promote allegations about a populist manipulation to fuel antagonism. Fat-cat tycoons, who pad themselves with inordinate privileges and disproportionate financial perks are, after all, the least likely to win popularity contests.

The odds were from the outset stacked against the Yacimovich-Katz bill. In undisguised disregard of the widespread support for it, the Treasury trained its mightiest guns against the proposal. Cynics noted that Treasury higher-ups had every personal incentive to fight the legislation, as most of them are eventually head-hunted to fill top executive posts in the private sector.

The Treasury hotly argued, however, that regulation is invariably self-defeating. Top executives can in any case cunningly bypass all restrictions via bonuses, options and generous pension and retirement packages.

Yet the Swiss public obviously thought differently and focused on the highly lucrative ploys used to facilitate remuneration outside the salary framework proper.

To be sure, not everyone in Switzerland is convinced that the initiative will succeed. A considerable portion of Swiss equity is held by overseas entities, such as hedge funds, which would be quite amenable to the higher-ups’ self-indulgence as long as share prices rise and dividends are paid.

There are weighty merits to the arguments on both sides. Still, all should remember that the extravagance of overpaid executives demoralizes others – especially in a small society such as ours.

Greed also bites significantly into company profits, equity values and stockholders’ dividends. Ultimately it harms the very market forces that are supposed to self-regulate. Hence intensified regulation must not be rejected a priori. Indeed it may be indispensable.

Fat cats who consume more than their appropriate share destabilize their entire ecological niche. If freemarketers like the Swiss understand this, should not we here as well?