How much do 'pyramid' CEOs make? Not exactly slave wage
The scene was embarrassing. There sitting at the conference table in an opulent office building was one of biggest tycoons in the land, a man who controls a pyramid of business ventures ranging far and wide.
He was joined by his staff, some of whom earn millions of shekels a year. While the boss held forth on a major deal he had recently closed, a senior executive in the consortium tried to get a word in edgewise regarding procedure. "Shut up. I'm talking now. Don't interrupt," the boss snapped.
Whether his rudeness was the result of a prior run-in between the two or if he was just having a bad day, the executive held his peace. He had good reason to swallow his pride, or more precisely, several hundred thousand reasons a month.
A review of the executives in Israel with the 50 highest salaries in 2009, salaries of over NIS 600,000 a month, reveals that 46% work for the biggest business pyramid concerns in the country, in which a range of companies is controlled from the top with an investment of relatively little capital toward the bottom.
Nochi Dankner of the IDB Group, Yitzhak Tshuva of the Delek Group, and Idan Ofer and Shari Arison of the business groupings bearing their family's names, collectively paid their top executives more than a quarter of a billion shekels in 2009, and we have no reason to believe the 2010 list would look substantially different. The figures are testimony to the fact that it's important to maintain good relations with the boss, even if he's rude to you.
At privately held firms, the owner can shell out whatever he wants when deciding to hire a talented candidate to run his business. In the case of publicly-traded business groups with a pyramid-type top-down control structure, the controlling shareholder generally also makes the final decision over hiring and salary, but the taller the pyramid is, the greater the portion of the salary that is paid by the public-shareholders outside the controlling group.
In 2009, Yitzhak Tshuva, reputedly generous with the hired help, paid Delek Israel Fuel CEO Eyal Lapidot NIS 1.4 million a month. Through his chain of interests, Tshuva owns only about 50% in Delek Israel, so the other 50% of Lapidot's salary was paid by public shareholders.
That same year, Avraham Bigger, former chairman and CEO of Makhteshim Agan, took home NIS 900,000 a month.
Nochi Dankner and his partners in his group, who are responsible for this fine remuneration, own just 20% of the company.
Pyramid-type corporations are not the only outrageous feature of the list of the top 50 wage earners. The cases of Ilan Ben-Dov and Eliezer Fishman, controlling shareholders who in 2009 received monthly wages of NIS 1.3 million and NIS 830,000 respectively, are just as outrageous. Owners who use wages as a substitute for a dividend, pocketing money without sharing the wealth with fellow shareholders, are not abiding by the principle on which publicly traded companies are based.
Data supports the theory that a lack of competition may cause inflated salaries that bear no direct relation to abilities. This is the case, for example, in the mobile communications sector, whose executives make up 10% of the top 50 list, earning a combined NIS 60 million in 2009. At the banks, which provide 18% of the top earners, the combined pay was NIS 90 million.