Hold me back!

The heavy hand of the recession was palpable in the financial statements of one of Israel's strongest, most profitable companies.

Retailer Supersol (NYSE, TASE:SAE) ( SAE) and its arch-rival Blue Square Israel (TASE, NYSE:BSI) have a death-grip over the Israeli food industry, yet the former was forced to admit that its operating profit plunged by 55% in the second quarter due to a 10% slide in same-store sales.

The second half will be just as sorry, apparently. The deepening recession and intensifying competition stand to make 2002 one of the worst years Supersol has known. Its pain is likely to be felt in all parameters

Oops, sorry, my mistake. Not all - there is one parameter that will soar like an eagle. Namely: the income of the retail chain's CEO, Ami Segis. Last year he made NIS 275,000 a month. This year he'll do even better, after the Supersol board in April approved a special bonus of NIS 4 million for him, plus improved retirement terms. He has already received half that in cash.

How do plummeting profits sit with rewarding the CEO? Easily, it would seem. Salary norms for CEOs in Israel have changed over the last decade. Raising Segis' salary as the crisis rages isn't raising any eyebrows.

Supersol yesterday refused to explain why, one day out of the blue, it decided to confer such bounty on its chief executive. But it also didn't bother to deny the rumor never confirmed that Segis was offered the job of replacing Jacob Perry as CEO of Cellcom, Israel's biggest mobile communications company.

We can't know exactly how it went down, but here's a possible scenario for how the convoluted ownership structure of Israel's giant companies has turned into more cream for fat cats.

Last year, Jacob Perry decided that his salary - NIS 17 million over three years just didn't reflect Cellcom's success, and the tremendous value it generated for its shareholders, headed by the Safra family.

But Cellcom's chairman, Shlomo Piotrkowsky, who also represents the Safras' interests and is paid by them, is a particularly mulish man, who elected to play it poker-faced.

After months of playing, Perry was about to throw in his cards and stalk away, but then Piotrkowsky and Perry realized they were both likely to lose the match. Perry received a nice raise and stayed on, for now.

Perry had been represented by attorney Ram Caspi, whose opening bid was very high. Piotrkowsky joked that if Caspi could get that kind of money for Perry, then he should represent him Piotrkowsky in salary talks with the Safras.

Amusing, but actually, Piotrkowsky's quip says it all: Managers and directors setting salaries for their underlings usually have their own pocket in mind. They'll approve the raise, if it ultimately serves their interests.

Take Dalia Lev, Supersol's chairwoman, who had the say on Segis' pay. Lev, the dominant figure on the retailer's board, did not want to lose Segis, appointment she had been responsible for, that had proved its value. A NIS 4 million bill to keep him from straying didn't daunt her maybe quite the contrary. She doesn't own the chain, no one group does, anyway.

Theoretically, Supersol is controlled by Discount Investment Corporation (TASE:DISI), which is run by Ami Erel.

Discount Investment Corporation is controlled by IDB Holding Corporation. But the entire IDB group is in the process of being sold to Nochi Dankner, thus creating a most interesting situation.

On the one hand, the IDB group is in flux and there is a managerial vacuum at the top, leaving the group at the mercy of its various managers. On the other hand, they all from Segis to Lev to Erel know that the moment Nochi Dankner takes the reins, they may find themselves outside with nothing in hand but their golden parachute. Exactly the kind Supersol sewed up for Segis.

Ami Erel already has his parachute. Lev probably does too, given her seniority in the group over years.

Ostensibly, raising Segis' pay to prevent his moving from Supersol to Cellcom is a bad deal for IDB, which controls both companies. The truth is that the raise serves not the group but its managers, who gain legitimacy to sew up another golden parachute for another manager. Raising pay standards benefits the whole lot of them.

Segis isn't the first manager who told his company, "Keep me". Gimme a bonus to keep me from straying. Just six months ago Bank Leumi tailored an NIS 8 million golden parachute for its chief executive, Galia Maor, in case of her dismissal. That was after she was offered the job of chairman of Bank Hapoalim's management board, in the stead of Amiram Sivan.

Maor, like Segis, turned down the offer, but again everybody came out on top.

She won because Leumi's board hurried to manufacture her parachute, assuring her of creamy compensation in case the bank is privatized and she's fired. Hapoalim key shareholder Danny Dankner won because his family has borrowed tremendous sums from Leumi and good relations with Galia Maor can't hurt. And, naturally, Hapoalim chairman Shlomo Nehama won because the higher Maor's compensation, the easier it is for him to push through bonuses and wage raises for himself.

Now that we've understood how things work, and why there is no correlation between profitability and salaries, it would be nice to end on a cheerful note.

Things work much the same in the United States: A okays the deal for B who okays the deal for C who okays the deal for A. The American way is a tad more sophisticated, in that the tremendous paychecks derive from falsified financial statements or inflated share prices, which collapse after the manager sells and bows out. In our tiny little backwater, at least, our managers manage to arrange matters without being reduced to colossal fraud.

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