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