Taking Stock / A Million Dollars

"We have many customers who earn sums like that every month, and much more."

When Amiram Sivan, the late chief executive of Bank Hapoalim, told the press seven years ago that a lot of managers were earning millions of shekels or dollars each year, people were skeptical.

For years, people thought the outrageous salaries and perks noticeable in the last 15 years or so were mainly the province of the publicly traded companies.

Sivan had his own reasons for that disclosure. He gave that interview when Bank Hapoalim was privatized. His salary was multiplied several times over and he was getting raked over the coals in the press.

Eli Yones, who replaced Sivan at the helm of Hapoalim, said something along the same lines, after he joined United Mizrahi Bank and the details of his enormous remuneration reached the public domain. Asked why he refused to comment on it, he explained, "When I left my job as accountant general of the treasury 12 years ago, I considered all kinds of possibilities. Finally I decided to set up a new business, called Eli Yones Bank Management. It is my private business. I sell my service to anybody willing to pay."

Indeed, high pay per se is not a new phenomenon in Israel. It has been around for years. If there is something new, it is that some employees are getting high pay at the expense of the controlling shareholders.

Company owners find themselves competing not only to sell, but for top management positions as well.

Mozi - complaining, but paying

Six months ago, Mozi Wertheim, one of Mizrahi's owners, bitterly complained in an interview with TheMarker Magazine about Yones' salary. He's angry, but he's paying. Why is he paying? Apparently, because he has no choice. Norms have been created, however warped they may be. There is a market and those are the prices.

This week, we were reminded just how far these salary norms have spread because of a nasty spat at Tally Eitan's law firm. As the battle raged in court, the patent and intellectual property law firm's revenue for the year came to light - $15 million. Industry sources believe that Eitan herself makes about a million dollars a year, after tax.

She has probably become one of the richest lawyers in Israel, thanks to the high-tech boom, and her office's specialization in patent law. But she is not alone. There are thousands of professionals - lawyers, engineers, consultants, architects, marketing and advertising people - who are withdrawing salaries in the millions from their firms or partnerships.

Eitan's law firm is not listed on the Tel Aviv Stock Exchange. It is her private business. She achieved her remuneration thanks to talent and grit. Nobody forces her clients to work with her and she owes no explanations to anybody, except to her partners in the firm.

Of course, much of her revenue originates at publicly traded firms. Almost all high-tech money is based on "other people's money" in pension funds and other investment vehicles, which buy the shares of the publicly traded firms, which finance the venture capital funds. In a world in which most of the companies are publicly traded or rely on the capital market or on the banks, you cannot sharply distinguish between private and "public" money anyway.

The press and the public discourse dwell ceaselessly on executive salaries in publicly traded companies. This is because the issues touches on proper disclosure.

Yet make no mistake; high salaries at the publicly traded companies is not an isolated phenomenon. It is part of a general trend, in which remuneration for professionals has been on the rise for years.

Why get paid at all?

In most cases, the real question isn't what a person makes, a million or ten million shekels. It is why the money is being paid, whether the relevant market is competitive or monopolistic, and whether it is being paid for skills, or for murkier things such as excellent contacts in government.

We can't wrap this up without a moment of family perspective. Tally Eitan is married to one Boaz Eitan, an engineer who set up a cute little startup seven years ago - Saifun Semiconductors.

His startup did quite well, and Boaz Eitan kept its shareholding high, at more than 50 percent, even though he also got a lot of money from venture capital funds.

Five days ago, Tower Semiconductors sold its 10-percent stake in Saifun based on a company valuation of $400 million. Ergo, Eitan's shares are worth more than $200 million.

Who bought the shares? Investors anticipating that Saifun will hit the stock market at double that valuation. If it does, Eitan's shares will be worth a billion shekels.

Assuming a fee of $500 an hour, which is customary for top-tier lawyers, that's equivalent to 700,000 hours' work for Tally Eitan. Sometimes even top-tier salaries can't cut it.