Business Expert Pans Cap on Top-Tier Salaries

A senior figure in Israel’s investment industry has spoken out against the law to limit executive salaries, passed last week by the Knesset Finance Committee, criticizing it as hasty, riddled with loopholes and ultimately harmful to the economy.

In an op-ed in the financial daily Globes on Tuesday, Zvi Stepak, the chairman of Meitav Investment House and an expert on capital markets, condemned the politicians for being in too much of a hurry to intervene, and thereby to win public approval. He argued that imposing a ceiling of 2.5 million shekels, or no more than 35 times the lowest-paid worker in the enterprise, was not the right way to go about correcting the problem.

Stepak himself has been a tough critic of the executive culture which has “lost any sense of shame” in grabbing huge compensation packages. And he warns that, if allowed to continue unmoderated, the top-tier salaries “will fuel such public anger that senior managers will find themselves living behind concrete and steel walls with a private police force and bodyguards to protect them, or under a less ominous scenario, they will bring upon themselves legislation.”

But the proposed salary cap is a mistake, he says. It was drawn up so hastily that the executives’ lawyers will easily exploit the loopholes in the draft law, rendering it largely ineffective.

Worse, it represents “unprecedented interference in labor relations… There is no country in the world that has imposed limits on compensation, certainly not such draconian limits… In other words, it is by no means certain that this bill will pass the test of the High Court.”

Moreover, it will damage the country’s reputation internationally. “As is well known, Israel is not ranked highly in comparison with other countries as a place to do business. This extreme and targeted interference in the compensation of senior company officers ensures that it will slide further towards the bottom of the rankings… The damage, however, is not just to the country’s image, but consists of real and tangible economic damage resulting from companies thinking twice and more before doing business with Israel.”

It would be better, Stepak advises, to allow time for the recently-enacted Amendment 20 — which gives minority shareholders a greater say in managerial salaries — to take effect.

“We are already seeing a substantial decline in the compensation of most senior executives, and I believe that this trend will continue. This belief is supported by research on the matter carried out by the Israel Securities Authority,” writes Stepak.

What about Meitav Investment chairman Stepak’s own salary?

“I come to this subject with clean hands. To the best of my knowledge, Meitav was the only firm on Israel’s capital market that imposed on itself a cap on senior managers’ compensation relative to the lowest-paid 10 percent of its workforce, and that after its top executives’ compensation was approved by the shareholders meeting under Amendment 20.”