The exaggerated salaries earned by top executives have serious social ramifications: The yawning gulf between their paychecks and those of ordinary citizens divides society, undermines its strength and reduces the motivation of middle-class workers.
After a year of work, the Neeman committee has come up with its recommendations for fixing one of the worst distortions in the economy: the wages paid senior officials at publicly traded companies.
The exaggerated salaries earned by top executives have serious social ramifications: The yawning gulf between their paychecks and those of ordinary citizens divides society, undermines its strength and reduces the motivation of middle-class workers. It's hard to accept the fact that a CEO can earn as much in a single month as an ordinary employee earns in 10 years.
But that doesn't mean we should support extremist legislation of the sort some Knesset members have proposed. They want the Knesset itself to determine the formula governing how much executives at publicly traded companies should be paid. That is a lousy, populist idea.
No such law exists in any other Western country. Nor does there exist a regulator anywhere who is capable of knowing what the correct wage ceiling should be for any one of a multitude of different companies, each in a different situation. There are situations in which it is appropriate to hire a well-known executive and pay him a very high salary to rescue the company. There is no reason why we should be different from Europe and the United States in this regard.
The Neeman committee took the middle road in its recommendations. It does not advise intervening directly in executive pay, but does advocate indirect intervention. It says the process of setting executive salaries must be more transparent, better regulated and subject to numerous restrictions.
The recommendations would boost the independence of members of the board of directors and increase the power of the general assembly of shareholders. If adopted, boards of directors would have to institute clear and transparent wage policies, including more rigorous discussion and approval processes that would address a long list of criteria (such as the average wage at their company and the company's operations ). They would also have to institute ceilings for bonuses, options and severance packages.
To give the panel's recommendations teeth, it might be wise to explicitly impose fiduciary obligations on board members. In that way, any time they approved an inflated, illogical executive pay package, they would be exposed to shareholders' lawsuits demanding that they return the money to the company - out of their own pockets.
The Neeman committee report was not submitted to the cabinet yesterday for fear that it would not muster majority support. Nevertheless, it includes sound recommendations.
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