Finance Committee to vote on executive-pay bill

The bill would put a series of regulations in place for executives making over NIS 3.5 million a year.

February 15, 2016 21:24
2 minute read.
Moshe Gafni



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The Knesset Finance Committee is preparing to vote on an executive-pay bill in the coming days that would limit exorbitant salaries for high-ranking financial executives.

The bill would put a series of regulations in place for executives making over NIS 3.5 million a year. Opposition members said it did not go far enough because it was limited to executives in financial firms and not all public firms.

If passed, the bill would require financial companies that pay more than the benchmark to set up special remuneration committees to approve salaries. It would also make salaries above the limit nondeductible from taxes.

“There is great significance in the debate over this bill and its passage, and thus it is an important social statement that is appropriate to [limit] the executive salaries,” committee chairman Moshe Gafni (UTJ) said.

“There is no problem in there being rich people, but it cannot be that there will be such extreme gaps between the executives that earn millions of shekels a year and the average worker and certainly minimum-wage earners,” he said.

Some argued that it did not go far enough.

“The bill, as it is, is unreasonable and illogical,” Meretz MK Zehava Galon said. “Of the 65 high-salary earners in the institutional bodies, the law will only be applicable to 27, and 38 will continue getting a very high salary.”

The law should be applicable to all public companies, she said.

Zionist Union MK Manuel Trajtenberg, an economist, said the cap was too high. The NIS 3.5m. figure was meant to mirror similar laws applying to $1m.

salaries in the US, he said. Because the per capita GDP in Israel is just 60 percent that of the US, a more appropriate mirror for the $1m. cap abroad would be closer to NIS 2.3m., he said.

Trajtenberg proposed an additional tax for high earners.

A representative from the Institute of CPAs in Israel said the policy would punish people who own shares in the financial institutions because it would eat into profit margins.

The policy could also backfire as companies look for other ways to pad compensation. In the United States, then-president Bill Clinton enacted a similar policy in 1993 that put a deductibility cap on nonperformance- linked executive pay above $1m. The policy is thought to have ushered in an era of stock-based compensation, which ended up fattening overall compensation instead of slimming it down.

Gafni said the law would be put to a vote in the coming days.

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