The Bottom Line / The Generous Invisible Hand

How can an employee, no matter how talented he may be, justify a salary of NIS 100,000 a month? Or a million a month?

How can an employee, no matter how talented he may be, justify a salary of NIS 100,000 a month? Or a million a month? Glancing at the top earners table among the publicly traded companies, one is tempted to say that there can be no justification for such extravagance.

Are Gershon Zelkind, Haim Katzman and Ilan Ben-Dov all worth NIS 20,000-50,000 a day to the companies they work for? Let's say Katzman wasn't a controling shareholder of Gazit Globe, or that Zelkind wasn't behind Elco, or that Ben-Dov had no shares in Suny - would the boards still have suggested the same generous remuneration packages? Obviously not. Just to get a wage of NIS 10,000 requires at least three board members to come up with the goods.

The principles of the free market warmly applaud that successful entrepreneurs should get rich. But the same principles insist that such rich rewards must be greater than the added value that the individuals have wrought for their firms. And too high a wage comes at the expense of partners and debtholders. But a controling shareholder who knows how to bring continued growth and profitability can make a small fortune from distributing dividends and raising the share value.

But hold on one moment. That's not the major problem with these tables. Actually, in 75 percent of the cases, the top wage earner works for a company where someone else is the controling shareholder, and that's who decided to pay the ton of money. In recent weeks, a lot has been said - some of it just rabble-rousing - about bank managers' high wages. Although this may be no way to engender hostility toward the banks and their wages, isn't the free market's "invisible hand" responsible for setting these salaries?

How are the wages of Eli Yones and Jacob Perry at United Mizrahi Bank determined? The two led their own negotiations on the condition that they were prepared to accept a job at the bank, and they achieved the best packages they could. Maybe it was a reflection of their managerial prowess or bargaining strength, but it was certainly not due to their control of the bank. While supervision in the public sector is needed over wages - because the hand that makes the decisions is far from strong, and the money is coming from the taxpayers - is there such a need in the private sector too?

Apart from feeling jealous, why should Yones' extraordinarily high wages bother anyone? Mizrahi shareholders - and that includes the Ofer and Wertheimer families who themselves are in the top paid league - decided to buy Yones' services. The bank board calculated that the sum that would tempt Yones back into banking was lower than the benefits that would spring from his hand on the tiller, so it was worthwhile paying him. This is a classic example of a satisfied buyer and a satisfied seller.

But still something's not quite right. Surely a healthy company in Israel can't last long with such massive salary disparities. Now Yones is not to blame, nor are the Mizrahi owners, but apparently there is a distortion in the market for senior staffers. A healthy economy and company ought to prevent a situation in which Yones demands and gets NIS 192,000 a month, in addition to perks.

Yones' former bank, Tefahot, deals with thousands of couples struggling to keep up with their mortgage payments. And no wonder too, on a wage 30 times lower than Yones'. And their troubles over paying off an average mortgage will last many years, long after Yones has moved on to make way for another, well-paid CEO.