Welfare Minister Isaac Herzog sides with clapping caps on executive pay, as proposed in a bill by MK Shelly Yachimovich (both belong to Labor ). But Herzog believes pay caps should be coupled with a broader move to define the role of institutional investors and warns that executives must not be perceived as "enemies of the people."

Executive pay at publicly traded companies and stock options for the managers should be linked with corporate performance over time, Herzog told TheMarker. The manner in which directors are chosen for the board of directors needs to be thoroughly examined too, he said. The minister added that clear rules for the role of institutional investors also need to be determined: They are the representatives of the public's pensions.

Herzog, a member of the ministerial committee studying the topic of executive pay, is the only member who sides with Yachimovich's legislative drive. The other members of the committee are Finance Minister Yuval Steinitz, Justice Minister Yaakov Neeman, Industry and Trade Minister Benjamin Ben-Eliezer and Eugene Kandel, head of the National Economic Council.

Yachimovich suggests limiting executive pay to 50 times the salary of the lowest-paid employee of the company.

The committee is discussing the issue in depth and very seriously, Herzog said. "Some say the problem of executive pay is symptomatic of a greater problem, which should therefore be tackled [first]." But the issue keeps popping up every few years, he added: "It's time to deal with it."

Herzog feels that the proposal raised last week by Shmuel Hauser, dean of business administration at the Kiryat Ono Academic College, is better than Yachimovich's suggestion. Hauser suggests limiting executive pay to a multiple of the average wage, and allowing the board to approve stock options for executives based on the company's profitability.