ASHER MEIR 58.
(photo credit: Courtesy)
Last year, MKs Shelly Yecimovich (Labor) and Haim Katz (Likud) proposed a law
that would limit the salaries of managers in publicly traded companies to 50
times the salary of the lowest-paid employees. The law didn’t pass, but a
committee headed by Justice Minister Yaakov Neeman undertook to examine the
issue, and this it week published its recommendations.
wisely recommended that no steps be taken to limit what companies may pay their
It is possible to describe the original bill as a “solution
looking for a problem.” What is the problem that the 50-times formula was
supposed to solve? If the problem is that workers are paid to little, then they
could propose a law that would raise their pay. (Such a law would certainly be
counterproductive, but at least it would be directed at an actual problem.) Is
the problem that people are paid too much? Someone has to explain to me exactly
why that is bad. Did Yecimovich wear black the day Stef Wertheimer sold his
company to Warren Buffett for $5 billion? Did she sit shiva when Yossi Benayoun
signed a £5 million contract to play football in England? Does she tear her
clothes whenever Itzchak Perlman gets five or six figures for a major concert
appearance? Why exactly is she upset that business managers are able to earn a
lot of money? If such a law could be made effective, it would hamstring
businesses. Suppose I find a manager who can make my company $10b., and he wants
to get paid $1b.
Sounds like a bargain, doesn’t it? If there were a cap
on executive compensation, the deal would never be allowed; my company would
have to sit in the doldrums and perhaps fire workers instead of hiring new
It could be argued in “defense” of such a law that it would really
be quite ineffectual.
If I have a manufacturing business in which the
lowest-paid workers get NIS 5,000 a month, and I can’t get the manager I want
for NIS 250,000 a month (less than $1m. a year; not at all a high salary in many
sectors), I can always spin off my company into a manufacturing company (top
salary NIS 250,000) and a management company (top salary NIS 12m. a month). More
likely I will just take it private.
(In the US, the Sarbanes-Oxley Act of
2002, which imposed strict accountability requirements on public companies, made
many companies far less accountable to the public because it caused hundreds of
companies to go private and drop off regulators’ radar almost altogether.) The
Neeman Committee concluded that there is no reason to create a new bureaucracy
to enforce a counterproductive policy that can be readily circumvented. Instead
it recommended that companies be required to have a clear and transparent policy
regarding executive compensation.
The objective is to make the directors
more independent of the management.
There can definitely be a problem of
excessive dependence of directors on managers, which would enable the latter to
write their own salary ticket. But in my opinion this problem is not a serious
one in Israel.
Indeed, the response to Sarbanes-Oxley showed that
increasing the demands on directors can make it difficult to find qualified
directors, just as limiting the pay of managers can make it difficult to find
email@example.com Asher Meir is research
director at the Business Ethics Center of Jerusalem, an independent institute in
the Jerusalem College of Technology (Machon Lev).