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(photo credit: Channel 2)
A new bill proposal that seeks to put a maximum ceiling on the amount a company pays executives in salaries and bonuses is already facing opposition.
"There is no doubt that there is a problem here regarding the vast salaries executives are being paid in excess," said Finance Ministry Accountant Yaron Zelicha at the "Annual Capital Market" conference of The Marker on Sunday. "But the government is entering dangerous ground by trying to interfere with the private sector."
Following recent public criticism and outrage over the enormous salaries paid to senior executives of publicly traded companies a new Justice Ministry bill, initiated by Justice Minister Haim Ramon, is being presented to the Knesset and the finance minister, which would fix a maximum salary ceiling of between NIS 4 to 6 million a year. Beyond the ceiling, payments would not be applicable as a tax-deductible expense as the current tax law permits.
Although Ramon expressed that he was not in favor of supporting state interference when it comes to determining the salaries paid to senior executives, he said the situation in which the state (through the tax laws) was supporting ballooning salaries was not acceptable.
"Since it is not right that the state provide incentives for the payment of salary and benefits that are so much higher than the average wage, it is proposed that the Income Tax Ordinance be amended," the Justice Ministry explained in the drafted bill.
Zelicha plans to advise the finance minister to oppose the bill and Shraga Brosh, president of the Manufacturers' Association of Israel, joined the opposition.
Although he warned that salary gaps in the Israeli economy needed to be tackled, he said it should be done, not through legislation, but through careful examination of the issue, which would lead to more suitable agreements.
"It should be remembered that our excellent managers have alternatives abroad," he said.
He believes the agreements should be made between employers, the Histadrut and the government.
However, speaking on the panel "Executive pay - have we gone beyond the limits?", Mozi Wertheim, one of the owners of United Mizrahi Bank and President of Coca Cola Israel, joined in expressing outrage regarding the top salaries that are being paid in the banking sector.
"The manager salaries we are paying at Mizrahi are all decided in accordance with the interest and in agreement with our shareholders. When I look at the salaries at other banks, I have to blink with my eyes to see if I am dreaming." Bank Hapoalim Ltd., Israel's biggest lender, paid its CEO Zvi Ziv NIS 33.5m. in 2005, while Chairman Shlomo Nehama earned NIS 22m.
Responding to what the panelists forecast for the future of pay excesses in 2007, there was agreement that the high pay levels of today would have to come down as the issue was starting to cause much embarrassment and senior managers would soon be asked to take responsibility and be made accountable for their salaries.
"Shame helps but it's not enough. Soon the regulator will start to interfere requesting more disclosure and accountability regarding high salaries," said Prof. Uriel Procaccia of the Interdisciplinary Center Herzliya.
"Furthermore, shareholders should start to sue to stop pay excesses."
Ofer Neeman, CEO of private equity firm Evergreen and member of the Board of Management of the Movement for Quality Government in Israel, added that the annual salaries of NIS 20m. to 30m. paid to bank executives would not be approved by the public in the future.
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