Justice Min. Recommends Taxing, Not Capping, Executive Salaries

Ministerial committee studying issue of executive compensation meets to consider the Justice Ministry's preliminary recommendation.

The Justice Ministry is proposing raising taxes on the highest income earners - but not legislating salary caps, as several MKs had previously proposed, Deputy Attorney General Avi Licht wrote in a report presented last week to the ministerial committee studying the matter of executive compensation, headed by Justice Minister Yaakov Neeman.

Yaakov Neeman and Shelly Yachimovich Emil Salman
Emil Salman

The committee met yesterday to consider the ministry's preliminary recommendation, and is expected to make a decision on the matter shortly.

Many MKs expect the committee to reject the imposition of legal limits on executive salaries in publicly traded companies and recommend that boards of directors of public companies be given increased power.

If the ministerial committee supports the ministry's stance against salary caps, the Ministerial Committee for Legislation (also headed by Neeman ) will probably follow suit, and that would require the coalition to object to the private member's bill introduced by MKs Shelly Yachimovich (Labor ) and Haim Katz (Likud ), which would limit the salaries at public companies to 50 times the salary of the lowest paid worker in the company.

'Clear social element'

Yachimovich called the recommendations "murky and insignificant" and said it was clear Neeman was appointed with the intention of allowing executives to continue drawing "out-of-control, excessive salaries" rather than rein them in.

She said Neeman, who is not an MK, owes the public nothing and will return to the business sector, which she characterized as made up of "the rich CEOs and tycoons." She said the committee's only purpose was to bury the limits on executive salaries and enable continued corruption.

Yachimovich said she would continue the difficult battle to enact her proposed law.

The Justice Ministry declined to comment on Yachimovich's remarks.

Licht recommends that all high wage earners be taxed at a higher bracket equally, not just those whose salaries come from public companies. The report did not provide details about who might be affected by any tax changes.

The ministry said its proposal is somewhat unusual but should nonetheless be considered carefully, saying it is preferable to other recommendations, like capping executive salaries.

Licht conceded that there are drawbacks to adding higher tax brackets and said it was possible that some people would still find ways to avoid paying higher taxes, but said the ministry's recommendation would be effective in reducing social gaps.

'An appropriate moral solution'

"Still, as with every progressive tax, this method includes a clear social element of transfering wealth to the weaker sectors," wrote Licht. "If there is intent to deal with the moral side [of the matter], then this solution is the appropriate solution."

The Justice Ministry says a final proposal requires a thorough study of the issue in conjunction with the Israel Tax Authority.

The initiators of the proposal noted they were aware of the government's policy of reducing taxes, and said their recommendation is preliminary, since tax increases have not been a focus of the ministerial committee's deliberations.

In addition to Neeman, the ministerial committee on executive compensation includes Finance Minister Yuval Steinitz (Likud ), Industry, Trade and Labor Minister Benjamin Ben-Eliezer (Labor ), Social Affairs Minister Isaac Herzog (Labor ) and the chairman of the National Economic Council, Professor Eugene Kandel.