C'tee mulls tougher limits on executive pay

The committee had previously considered steps to limit tax deductions on executive salaries at financial firms to NIS 3.5 million.

By
March 16, 2016 17:31
1 minute read.
MK Miki Zohar

MK Miki Zohar. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

 
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The Knesset Finance Committee on Wednesday advanced measures to limit executive pay at financial companies in unprecedented ways.

“This is a historic process,” said committee chairman Moshe Gafni (United Torah Judaism). “This is the first step in fixing the inequality in society. The times have changed, and moving forward, we will examine how to limit wages at public companies, and in non-financial companies.”

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The panel had previously considered steps to limit financial firms from taking tax deductions for salaries to NIS 3.5 million per executive per year.

On Wednesday, at the suggestion of Likud MK Micki Zohar, the committee dropped that limit to NIS 2.5mn. Further, it said that top salaries could not exceed 35 times the cost (or 44 time the take-home salary) of the lowest-paid worker in the company. Given the minimum wage, however, that amount would also amount to roughly NIS 2.5m., the cap that Finance Minister Moshe Kahlon threw his support behind this week.

Every shekel beyond the cap would not be eligible for tax deductions. Furthermore, there will be a penalty tax.

The bill is expected to reach its final readings in the Knesset in the next two weeks. Once promulgated, it will go into effect immediately for all new contracts, but provide a six-month window for existing salary arrangements.

The legislation might yet backfire. Many economists blame a similar 1990s US law for pushing executive compensation packages toward stock options, which ballooned in the years after the law’s passage.

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Earlier on Wednesday, there was an uproar in the committee as the members debated the measures, which temporarily delayed the proceedings.

Meretz chairwoman Zehava Gal-On called for rules requiring companies that break the executive pay gap to raise minimum salaries accordingly.

Zionist Union MK Manuel Trajtenberg suggested expanding the limitations to all publicly traded firms and imposing higher taxes on higher pay.

MK Shelly Yacimovich said that even with the restrictions, salary differences would be enormous. “The penalty is ridiculous. We’re working through a shaming mechanism here.”

Gafni postponed the vote by several hours to take stock and coordinate with the government.

A measure of this magnitude should not be taken lightly, he said.

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