Two weeks ago, after writing a column on bonuses at the big banks, I received a surprising phone call. "This is Yossi Sarid," said the caller, "and I want to set your mind at rest."
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"Right now my mind is quite at rest," I answered. "What are you talking about?"
"I see that you're bothered by what top bankers get paid, or at least that's the impression from your analysis in the paper," explained Sarid, a former Israeli minister. "So I want to reassure you: that there's somebody who will put an end to the bankers' field day."
"Okay," I replied. "Who?"
"Me," he answered.
"You?" I asked.
"Me," replied Sarid. "I've just now submitted my application for the job of director at Bank Leumi. If I'm accepted I intend to deal with this issue of executive pay. The only problem is that I'm worried someone won't want me as a bank director."
Yossi Sarid is obviously an extremely brilliant man so I needed to push the discussion further. "It would be a pity for you if you're not accepted," I said. "Did you know bank directors earn NIS 500,000 a year in exchange for working no more than a 25% job including munching on bourekas?”
"You haven't done your homework," concluded Sarid. "If you also sit on several committees, the pay could go much higher than the amount you mentioned."
Yossi Sarid, who really did apply to become a Bank Leumi director, perhaps won't be chosen in the end, as he fears. But along with him, banks supervisor David Zaken and Finance Minister Yair Lapid proved this week that it's not so hard to change things and fix wrongs in Israel – if only they're willing.
It’s the spirit that counts
After warning on Sunday about his intentions, Zaken on Tuesday issued a plan for capping bonuses paid to banking executives, even going as far as insisting on the cancellation of shareholder meetings called by banks to approve their earlier-disclosed scandalous plans.
There is no assurance that Zaken will succeed at his mission. If the banks want, they can get around any mechanism chosen or dictated to them and find other ways to channel the money into the pockets of their executives. Zaken chose to cap bonuses at 100% of base salary and demand that bonuses only be paid if suitable objectives and achievements are reached. The bankers can simply increase salaries and hand out retirement bonuses, "acclimatization" funds, non-competing clause compensation, stock options or any other variety of inventions they choose.
Therefore, what is really important about the bank supervisor's deed isn't the mechanism or the numbers, but the spirit of things and, even more, his official explanation for the move. "I think the [banking] system has matured and I hope the banks will act responsibly," wrote Zaken. "Public opinion and international regulations cannot be ignored."
Excuse me? "Public opinion?" "Maturity?" "Responsibility?" Since when should something so "populist" and "unprofessional" like "public opinion" affect the management of business concerns – or certainly banks since they are, after all, "the economy's oxygen supply?"
Never mind that a finance minister like Lapid, who wants to be liked by his voters, writes on Facebook about bankers' pay being "exaggerated." But the banks supervisor writing that public opinion can't be ignored is a major, ground-breaking event. The main reason that wrongs such as executive pay, low income tax rates for the rich, and scandalous interested-party deals still haven't been wiped off the face of the earth is that none of the decision makers has an interest in putting a stop to it. After all, bank supervisors traditionally move on after ending their terms to work for the very same banks they supervised – and there they receive the high pay we're all familiar with.
Zaken’s predecessor Rony Hizkiyahu is chairman of the First International Bank of Israel. Galia Maor, for many years Bank Leumi's CEO, previously served as banks supervisor. Zeev Abeles was banks supervisor and then chairman of Union Bank. Bank Leumi chairman David Brodet and Israel Discount Bank chairman Yossi Bachar both served as Finance Ministry director-general, a job that includes supervision of the capital market.
Trickle-down public opinion
Nobody therefore expects them to limit salaries at precisely the places where they'll be going to work in the future. This week Zaken directly and indisputably hampered his own future income. I wonder what his wife and children had to say?
So what happened to Zaken? Apparently the same "public opinion" and its effect on the stability of the banks, and on the economy overall, trickled down to him, too. He heard the calls, in Israel and throughout the world, read the reactions, saw that he has the support of parts of the political system – and decided to do the right thing.
But beyond the effect on the pay of no more than 50 bankers – which, between us, won't change a thing in the banks' financial reports – the banks supervisor is throwing down the gauntlet to all the other regulators, supervisors and managers in the economy.
"If only there's a will," he's actually saying, "anything can be changed." Here, I've changed in a single move something that nobody touched for decades. Every regulator and every minister can too – if they only overcome their narrow interests and those of several pressure groups that influence them. It's not hard.
If the crony capitalism set decides that "public opinion" is an important enough factor to change the socioeconomic world order, then Zaken's move will take on a greater degree of importance than he himself fathoms. "Public opinion" is very unsatisfied with housing prices. "Public opinion" dislikes the high cost of living and food prices. "Public opinion" is frustrated by low pay, pitiful and shrinking pensions, and the growing gaps between the rich and everyone else. "Public opinion" is absolutely revolted by many of the things it sees in the capital market.
Today many cabinet ministers are trying to be the next Moshe Kahlon and unveil a major initiative, as former Likud minister Kahlon did in the mobile phone market, to endear themselves to the public. The banks supervisor isn't a minister, not even a politician, but what he did this week has propelled him to the top spot on the list.