Salaries for Top Executives Declined in 2012

Survey of publicly traded firms shows impact of reform, social justice protests.

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Average senior executive pay at companies traded on the Tel Aviv Stock Exchange declined last year in comparison with the three previous years, according to an analysis by Securities Authority chief economist Gitit Gur-Gershgoren.

Her figures showed the average salary for senior managers at 67 companies surveyed fell by 13% from 2011 to NIS 3.2 million a year, and was down even more from a record average of NIS 3.8 million in 2010.

Addressing a conference held by the Israel Economic Association in Tel Aviv this week, Gur-Gershgoren also said that the decline in executive compensation at companies belonging to the big holding groups − the so-called pyramids, named for how they are structured − was steeper than at independent companies.

The drop in top management pay in the pyramid companies was quite possibly due to cash flow difficulties encountered by many of these firms and pay cuts consequently imposed by their boards, she says.

Excessive salaries and their impact on income inequality has emerged as a key issue, with the Bank of Israel, for instance, publishing a report this week on bank salaries. Last year, according to a survey by TheMarker, the Israeli-Canadian shopping mall developer David Azrieli held the No. 1 spot for executive compensation among Israel’s publicly traded companies, making NIS 23 million in 2012 as chairman of the Azrieli Group.

Second was Jeffrey Olson, the U.S.-based CEO of property investor Equity One, whose salary and related costs reached NIS 14.3 million last year. In third place came David Aviezer, the president and CEO of the biotechnology company Protalix, whose compensation costs reached NIS 12.2 million.

Amendment 16 kicks in

But the trend is towards more modest compensation after Amendment 16 of the Companies Law went into effect in September 2011 after senior executive pay at public companies ballooned 130% from 2003 to 2009. The amendment, giving minority shareholders the authority to determine executive pay, established a new balance between minority and controlling shareholders and the board of directors.

Another reform, embodied in Amendment 20 to the same law, has established a mechanism that strengthened the link between company performance and the level of executive pay and rewards.

A study by the ISA revealed several other interesting findings, among them that increases in the companies’ market capitalization didn’t prompt any increase in the pay to top executives. In addition, the fixed salary component of executive compensation rose in proportion to the stock options component. CEOs and chairmen who didn’t own a controlling stake in the company earned more than those who did.

Separately, a study published in February by Entropy Consultants, which advises financial institutions on issues pertaining to top management compensation, found that top salaries that were paid by public companies in 2012 were less than in 2011.

Entropy based its estimate after studying 400 compensation agreements approved by boards of directors for controlling shareholders and their relatives in 240 companies and concluded that “the extent of the change in the scope of the reward is substantial.”

The decline followed a 30% average reduction in 160 contracts from the compensation awarded to the same executives in 2011, reflecting an aggregate savings amounting to NIS 145 million. According to Entropy, there was no change from 2011 in 95 contracts and another 90 contracts included a raise in compensation.

The Tel Aviv Stock Exchange. Credit: Ofer Vaknin

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