After Capping Bank Execs' Pay, Israel's Finance Minister Mulls Reform for Other Sectors

Finance minister doesn’t plan to act quickly, facing opposition from Netanyahu and treasury officials.

Finance Minister Moshe Kahlon in the Knesset, March 28, 2016.
Emil Salman

The lopsided Knesset vote on Monday capping bankers’ pay now raises the question of whether the ceiling will be expanded to executives at all other publicly traded companies.

Finance Minister Moshe Kahlon, who was the prime mover behind the banker-pay legislation, likes the idea in principle but isn’t prepared to act until he is convinced political and economic conditions are ripe.

He signaled as much following the Knesset vote. After lauding the “important moral significance” of limiting bankers’ compensation, he said: “As I’ve always said, I’m for people earning a good living and being paid a respectable wage. Everyone should be happy but the happiness should include [low-paid] contract workers and the most junior employees as well, not just CEOs and chairmen.”

Kahlon is said to prefer top executives of publicly traded companies acting voluntarily rather than facing a legal limit. The Bank of Israel had long urged banks to voluntarily rein in pay for their top executives, but the campaign failed. Kahlon is hoping the failure of the banking lobby to block the law and the wide support it enjoyed in the Knesset will act as a warning.

Two opposition lawmakers – Shelly Yacimovich of the Zionist Union and Zehava Galon, chairwoman of the Meretz Party, both big supporters of the bankers’ law – are already preparing to introduce legislation in the Knesset’s summer session to extend the ceiling to all publicly traded companies.

Extending the pay cap, however, is likely to encounter opposition from two critical sources.

The first is Prime Minister Benjamin Netanyahu, who briefly tried to thwart the banker-pay ceiling. Earlier this year, the he agreed to support the legislation as part of the coalition agreement with Kahlon’s Kulanu Party because Kahlon was so insistent and Netanyahu needed him to ensure a Knesset majority.

But Netanyahu was unhappily surprised when the law was toughened by Kahlon and lawmakers. Sources said Netanyahu would never agree to expand the law to other publicly traded companies.

The other main source of opposition is from the Finance Ministry’s top officials. Amir Levy, the head of the budget division, was opposed to the bankers cap. Dorit Salinger, the head of the capital market, insurance and savings division, was unhappy with some aspects of the legislation.