Several weeks before elections in the Histadrut labor federation, MK Amir Peretz will be enjoying a standing ovation: yesterday afternoon a bill he submitted was passed at First call. The bill would limit top executives' pay to 15 times the lowest wage paid in the organization. According to his calculation, based on minimum wage, the limit is of a monthly salary of NIS 45,000.
At first glance the bill seems to be a brave, appropriate idea in this era of widening social gaps. What could be simpler than getting to the bottom of the matter ¿ forcing executives to a pay level not utterly detached from what goes on in their organization.
But take a second look at the bill and its populist side will show, as will its detachment from reality and its next-to-zero chances of achieving the goals it set out to achieve.
We can think of some questions legislator Peretz is likely to have missed.
First, his choice of limiting the salaries of top executives. Doesn't he know the wealthy gain their riches from dividends, management fees and capital gains, and not from their salaries? The salaries these rich folk take home are often smaller than their profits on the sale of their shares, or on the various odd deals they make in their businesses.
Were Peretz to take a closer look at how big money is made in Israel, he would quickly realize its not made on salaries, but in a slew of other ways.
Surely Peretz knows this. He is certainly very familiar with one case: the story of the sale of Housing & Construction (TASE:HUCN) to late businessman Ted Arison by the Histadrut labor federation. Arison never got on the company's payroll. He profited from having bought the company for a ridiculous price, issuing it on the market and waiting until he could sell it at an enormous profit.
Question is, is Peretz planning to limit salaries only or the process of getting rich as well? Maybe what he needs to do is determine no one can have assets worth more than 15 times those of the most junior employee in his organization, or ten times those of his neighbor.
Will Peretz stop at executive salaries or will he include the cost of all the added perqs they get? Should car maintenance, the wages of drivers, assistants, secretaries and world travel also be included?
Peretz is surely aware of the fact he personally may be asked to give up some of his pay and the cost of his delegation. If we add his MK salary and Histadrut chairman salary to the cost of all his assistants, personal driver, and other support personnel, we see Peretz has to make serious adjustments in his standard of living as an executive.
Peretz is naturally not the only one standing to lose here. Many top executives in the private sector will have to see their pay plunge, but there are plenty of top executives in the public sector whose (often unjustified) pay packages exceed the lowest wages in their organization times 15. Can Peretz do anything about them? Will he?
Another funny choice is this number 15. Why let it be that big? Why not set the limit at 10 or 12 times the lowest wages? Could this possibly be related to the fact that in many companies whose union heads are closely associated with Peretz executives are already taking home salaries that are ten times and more the lowest wages in the organization? Could a salary limit of ten times the lowest wages raise true mayhem in a company such as the Ports and Railways Authority?
We were also wondering what Peretz's plans were regarding the heads of Israeli hi-tech and other companies in the competitive markets. What does he plan to do about companies such as Comverse Technology (Nasdaq:CMVT), Amdocs (NYSE:DOX), Check Point Software Technologies (Nasdaq:CHKP) and many others where top executives made millions of dollars on their options in the last few years? These profits were not just 15, but 150 times the lowest salaries in their organizations.
Does Peretz even consider profits on options a part of anyone's salary? Does he differentiate between a million dollar bonus and a million dollar option package?
Few more questions: According to Peretz, top executives pay in most major companies will be limited to NIS 45,000, 50% to 60% higher than an MK's or Histadrut chairman's salary.
Does Peretz think the gap between his monthly salary and say Gil Schwed's or Kobi Alexander's should be a mere NIS 20,000? Or does he think NIS 45,000 is just too much for those market leaders?
Did Peretz ever seriously consider the fact that in many companies in the Israeli economy, especially those in competitive fields, the pay is determined according to a certain market mechanism, and that any attempt to interfere is doomed to fail?
It may very well be that comrade Peretz could not care less about all these things ¿ not as long as he got his newspaper headline.