Global Agenda: Top cats

The hot business topic this month - as every April - is how much corporate CEOs get paid.

computers 88 (photo credit: )
computers 88
(photo credit: )
The hot business topic this month - as every April - is what the Wall Street Journal calls "The Boss's Pay." The intensive interest in how much corporate CEOs got paid for the previous year's efforts peaks in April, after building up steadily through February and March, when individual companies release their financial results. These must, by law, include data on the various forms of "remuneration" (including salary, bonus and share options) which their most senior officers receive. By April, this data can be compiled into detailed league tables showing who got what, and into overall surveys showing the general picture for CEO pay across the economy, by industry or using any other yardstick. The focus on the pay of CEOs and that of executives generally, is a feature of media and analyst coverage of corporate affairs in many countries. The US is an outstanding example, but so is Israel - and, indeed, any other country where the relevant data are generally available. However, in yet another example of the tendency noted here last week, Israeli media columnists insist on presenting Israel as worse than anywhere else in the matter of the boss's pay. True, they admit, the absolute sums paid to Israeli bosses are generally much smaller than those in the US, but in relative terms Israel is in a class of its own. This relativity relates to two key considerations: the lack of any discernible link between the performance of the company in question and the overall remuneration package received by the CEO; and the ratio between what the CEO makes and what the average employee in his company makes. This is not the place to expand on how accurate or otherwise these claims about Israeli corporate pay are, and what factors need to be taken into account to make comparisons between countries useful. In passing, however, it's worth pointing out an interesting WSJ article on this general topic on April 10, discussing a study of the differences between US and UK pay levels for CEOs - the Brits get on average about half as much as the Yanks. But the bottom line of this whole discussion has less to do with relative numbers and much more to do with absolute ones. To illustrate this, let's turn to our local scene, and to the storm that has blown up over the huge and unprecedented (in Israel) sums paid to the heads of the banks, most especially Bank Hapoalim. The latter's CEO broke all Israeli records by walking off with NIS 33.5 million ($7.3m.) in 2005, thereby attracting the most attention and by far the most criticism. To the average citizen, this is an unimaginable sum, which triggers reactions ranging from anger and jealousy (quite understandably) to plain amazement: What does a guy like Ziv do to justify that kind of money? This is a very valid question, which allows us to get close to the heart of the whole issue of executive pay and why it is so important, not just for the economy but for society as a whole. The simple and correct answer is that neither Zvi Ziv, nor any of the leading bankers in this country, do anything that economic theory would regard as a valid explanation for their pay. Ziv is a very competent executive with an excellent track record. Period. Has he done anything at Bank Hapoalim that puts him in a different class to his peers? Not that anyone knows of. Are his talents and capabilities unique, or at least very rare? Very unlikely. If any one of 10 other senior bankers in this country had held his job in the last two years, would Bank Hapoalim's results, let alone its business strategy, be significantly different to what they were or are? Very unlikely. This picture holds true across the financial sector and most of the business sector. Only in special situations, or in entrepreneurial companies such as hi-tech start-ups, can unique contributions of specific individuals be easily identified. For the rest, it is generally a matter of being in the right place at the right time. And for CEOs all around the capitalist world, there is no time like the present - this year is much better than last, which was much better than the year before - and so on. The remorseless rise of "compensation" (can you believe that's what they call it?) for fat cats is one common theme in the business pages around the world this month. The other is that nowhere is there any expectation that this trend will change, nor even any hope that it could - just a widespread belief that it should.