Knesset panel readies for vote on salary cap for financial executives

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

By
February 15, 2016 20:06
2 minute read.
Knesset

The Knesset plenum . (photo credit: MARC ISRAEL SELLEM)

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

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

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If passed, the bill would require financial companies paying salaries above the benchmark to set up special remuneration committees to approve salaries. It would also make salaries above the limit non-deductible from taxes.

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

Some argued that it did not go far enough.

"The bill, as it is, is unreasonable and illogical. 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," said Meretz MK Zehava Galon. The law should be applicable to all public companies, she argued.

Zionist Union MK Manuel Trajtenberg, an economist, argued that the cap was too high. The NIS 3.5 million figure, he noted, was meant to mirror similar laws applying to $1 million salaries in the US. Because the per capita GDP in Israel is just 60% that of the US, a more appropriate mirror for the $1 million cap abroad would be closer to NIS 2.3 million. He also proposed an additional tax for high earners.

Meanwhile, a representative from the Institute of CPAs in Israel said that the policy would publish the public that owns shares in the financial institutions because it would simply 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 non-performance-linked executive pay above $1 million. 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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