Israel to regulate salaries for company executives

March 16, 2016  

On Wednesday, the Finance Committee voted in favor of a proposal which would cap executive salaries for those working in the financial industry.

The move, which limits the pay of executives of financial institutions to 2.5 million shekels ($640,000 US) a year, marks the first time in Israel that the government has regulated executive wages.

According to the bill, executive wages would also be tied to the company’s lowest paid employees. Finance companies will now be required to limit the highest salaries to 35 times that of the lowest paid employee in the company.

Moshe Gafni (United Torah Judaism), the chair of the Finance Committee, hailed the move as a “historic opportunity” for the government to clearly deliver the message that huge [salary] differences won’t be tolerated any longer.”

Working with Finance Minister Moshe Kahlon (Kulanu), Gafni hammered out an agreement that paved the way for this historic change. Yet some in the Knesset were disappointed by the compromise.

Meretz leader Zahava GalOn remarked that “Even two million shekels [$500,000 US] is still exceedingly high”, while Manuel Trachtenberg (Zionist Union) called for the regulation to be applied even beyond the financial sector.

Yet the actual effect of the new regulation is unclear. For decades states have attempted to curb executive pay through changes in the tax code, but to little avail.

A 2012 study conducted by the left-leaning Economic Policy Institute found that such regulations were ineffective at lowering overall executive compensation, with little impact beyond traditional salaries. Performance-based pay like stock options or fringe benefits, which are far more difficult to regulate, make up the bulk of executive pay.

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