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Public companies will have to set a maximum ratio between the average wage of their employees and senior management, according to a bill proposed by the ministerial committee on limiting executive compensation.

The committee has been working on the bill for more than six months. Committee members are Justice Minister Yaakov Neeman, Social Affairs Minister Isaac Herzog, Industry, Trade and Labor Minister Benjamin Ben-Eliezer, Finance Minister Yuval Steinitz and Prof. Eugene Kandel, the head of the National Economic Council. Neeman is the chairman.

According to the bill, companies will also be entitled to demand that former executives return money if it was paid based on false information about the firm's performance, or in cases of improper conduct.

Publicly traded companies would also have to explain criteria in their compensation policies such as the conditions granted to former executives in the same position. They would also have to discuss the breakdown into fixed and variable compensation.

Firms traded on the stock exchange would also have to set a ceiling for variable compensation; this would help prevent unreasonably high bonuses. Ceilings would also have to be set for so-called golden parachutes: severance benefits and bonuses. Companies would have to report in advance the considerations to be used in granting bonuses and other awards, basing them on measurable and objective criteria.

Kandel opposed a number of the proposed changes. The committee met yesterday, with only Neeman and Herzog present. The panel is expected to formally approve the proposal soon in preparation for its presentation to the Knesset.

A company's board and audit committee would be responsible for setting salary criteria for senior executives, and shareholders would have to approve the policies at their annual meeting. This approval would also require a majority of shareholders who are not interested parties such as the controlling owners, executives and their associates.

In exceptional cases, the firm would be allowed to pay compensation over and above that in its policies, but would still need the approval of its board and shareholders.

Other parts of the proposal include setting minimum periods for holding stock or options before cashing in and requiring all compensation policies to be approved every three years.

The committee was formed in response to a bill proposed by MKs Shelly Yachimovich (Labor ) and Haim Katz (Likud ) to limit the compensation to the highest-paid employee in a public company to 50 times that of the lowest paid. The cabinet objected and appointed the committee to put together its own proposal.

"The way to regulate executive compensation in public companies is not through direct legislative intervention in salary levels, but through indirect intervention in decision-making mechanisms," said a committee spokesman. "Indirect intervention will lead to the setting of more prudent and appropriate salaries."

Yachimovich called the proposed law much more far-reaching and well-thought-out than expected. "But it is not enough," she said, adding that care was needed to make sure the proposal was not eroded on its way through the legislative process.

"When you compare the figures from the poverty report to executive compensation, [you see] a moral and economic tragedy that Israeli society must stop accepting," said Yachimovich.