Pay Cap Trade-off: Stock Options?

A professor yesterday suggested a compromise to ministers considering a proposal to cap executive salary caps at publicly held companies: to sweeten the bitter pill with stock options.

Shmuel Hauser, dean of the Ono Academic College business school, suggested capping executive pay at some multiple of the average wage, but letting boards issue stock options to these executives based on the company's profits. The options would be exercisable only after three to five years in which the company made a profit, he proposed.

Present at the meeting were Justice Minister Yaakov Neeman; Welfare Minister Isaac Herzog; Eugene Kandel, who heads the National Economic Council; and Industry and Trade Ministry director general Sharon Kedmi. Absent were Finance Minister Yuval Steinitz and Industry and Trade Minister Benjamin Ben-Eliezer.

"I object to a regulator interfering and setting rules for how executive salaries at publicly-held companies are determined," said Hauser. "However, I admit that currently, there is no connection between managers' salaries and profitability.

He therefore proposed tying compensation to the company's long-term profitability, saying this would make executives cautious about risk-taking.

Former accountant general Yaron Zelekha told the committee that he supports the bill submitted by MKs Shelly Yachimovich and Haim Katz, which would cap the salary of a publicly held company's best-paid employee at 50 times that of the worst-paid employee. He also suggested canceling tax breaks on options and forbidding holding companies from going public, as South Korea does.