Top Israeli chief executives on Monday openly defended high executive pay at publicly traded companies but criticized the structure of the compensation packages, which have caused public outrage in recent months.
"A manager who is also owner of a controlling interest in the same company does not need to get any bonus or any other benefit over and above his salary," said Alfred Akirov, chief executive and chairman of Alrov Holdings at the Forbes conference "Executive Pay, Performance vs. Rewarding."
"They already get benefits over and above their salaries through the increase in the value of the shares they own and through the payment of dividends," he said.
Akirov, who referred to companies traded on the Tel Aviv 100 index, suggested a maximum executive wage of between NIS 2 million and NIS 5m. depending on the size of the company. "However, I am against the proposal of Haim Ramon of setting a fixed maximum salary boundary, I don't think the regulator should interfere on this matter."
This month, Bank Hapoalim Ltd., Israel's biggest lender, reached an agreement with shareholders and the Israel Securities Authority for the bank's top managers to give back part of their 2005 bonuses. Chief Executive Officer Zvi Ziv, who earned NIS 33m. in total compensation in 2005, and Chairman Shlomo Nehama, who earned NIS 23m., each agreed to return NIS 13m. to the bank. Nehama and Ziv also agreed not to take bonuses in 2006 from payments related to the sale of the banking and fund units.
"Bank Hapoalim managers deserved to get bonuses and high executive pay for their marvelous management and performance of the bank but the method was not right," Akirov said. "The bank's managers received bonuses, which were decided upon five years in advance, but bonuses need to be decided upon each year anew and linked to the performance of the company."
For top managers, who are not holders of a controlling interest in the company, Akirov suggested similar salary conditions combined with additional benefits through the creation of a subsidiary.
"By this method, the company would allocate to executives via a subsidiary 2 percent to 5% of the company's shares, of which 25% would be allocated to the company's employees.
Also speaking at the conference Pini Cohen, chairman of Tshuva Holdings, argued that high executive pay, if calculated proportionally, was good for the company.
"In the short-term, executives ought to be entitled to salary payment and bonuses and in the long-run they ought to get options. This is the formula for success of a company," Cohen explained.
In stark opposition, Akirov refuted Cohen's proposal of an options scheme.
"I am against options, they are bought today but redeemed a few years later, while the current accounting method has led to a situation, in which expenditure of options was not recorded. This method does not seem appropriate to me."
Meanwhile Izzy Borovich, chairman of El Al, compared top managers to commodities.
"A top manager is like a commodity, they are hard to find and hard to get and you pay them a lot."
Borovich noted that at El Al, executive bonuses were directly linked to the net profits of the company. "As profits are down, our managers will be getting a smaller bonus."