Yair Lapid’s Plan for Capping Bank CEOs’ Salaries Is a Good One

Under the finance minister's blueprint, top executives would still make millions and banks would pay more tax. What’s wrong with that?

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Yair Lapid, center. He's not buddy-buddy with bank CEOs. Credit: Emil Salman

The plan is no good. It’s not enough. It’s just public relations. It won’t put a lid on bank executives’ salaries. It reeks of communism. It discriminates against the financial sector. It’s sheer populism.

These are just some of the criticisms of Finance Minister Yair Lapid’s plan to cap bank executives’ salaries. These barbs come from the same journalists who harshly criticize the infuriatingly high salaries of top Israeli businesspeople and call on the Knesset and cabinet to step in. But now, when Lapid has thrown down the gauntlet, they still insist he’s always wrong and they’re always right.

These detractors need to know that every time the government intervenes in the market, it makes problems. They need to know that there’s no perfect method for tinkering with salaries. Every method has its pros and cons. Lapid’s plan has (relatively) few cons and quite a few pros. So it should be adopted.

The plan employs tax mechanisms, which isn’t an aggressive move. It doesn’t determine what an appropriate CEO salary is. It states that if the CEO salary gets out of control, the state will consider part of it an expense not necessary for generating income.

This approach isn’t new. Even today, if a CEO flies first class on a business trip, this isn’t tax deductible. The tax authorities only recognize flight prices up to business class. So if the CEO flies first class, the public won’t help pay. The same is true for other expenses in the business world, like restaurant costs. Lapid’s plan would simply add salaries to a list that already exists.

If a company wishes, for example, to pay its CEO an annual salary of 7.5 million shekels ($2.2 million), the tax authority will split that sum; 3.5 million will be recognized as an expense and 4 million won’t. The company will thus be forced to pay about another million in taxes.

But shareholders won’t want that extra million to fall on them, so the result will be a lower salary for the CEO and a respectable sum for the tax authority. It’s good for the country and it’s good for closing the salary gap. Also, let’s not forget that any salary above 3.5 million shekels will have to be approved by shareholders, which is also powerful deterrent.

This method is much better than the Bolshevik plan put forward by Labor MK Shelly Yacimovich, who wanted to limit a CEO’s salary to 50 times the salary of the lowest-paid worker. Such a harsh step, one never taken in any country, would see key businesspeople fleeing Israel. How, for example, would Idan Ofer have been able to convince Eli Yones to run Bank Mizrahi-Tefahot after running much larger banks?

But Yacimovich’s plan wouldn’t have allowed that. Mizrahi-Tefahot wouldn’t have recovered, and the entire economy would have suffered. Under Lapid’s plan, Yones would still have moved to Mizrahi-Tefahot. He simply would have made less and Mizrahi-Tefahot would have paid more tax. What’s wrong with that?

The market failures that led to exorbitant salaries should have been dealt with long ago. Ridiculous salary gaps are a malignant tumor on society. They create alienation, unrest and a desire to strike back. So it’s good that Lapid threw down the gauntlet. It’s a good move that shouldn’t be stopped due to petty accounting.

But why bother talking about fair play and logic? Lapid is to blame and always will be.

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