Israel: New Law Brings Drop in Top Earnings

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By Jenny David

Oct. 2—The aggregate employment cost of Israel's 100 top earners fell by 24 percent in 2012, according to a recent report on salaries among companies traded on the Tel Aviv Stock Exchange.

The drop was led by a 40 percent reduction in the compensation packages of managers who are also controlling shareholders of public companies. Amendment 16 to Israel's Companies Law ended the approval of controlling shareholders' employment terms in general shareholders' meetings. A majority of minority shareholders is now required to approve the employment terms of a controlling shareholder, which has forced many manager-owners to agree to significant compensation cuts in order to gain their co-owners' approval.

Controlling shareholders' compensation is expected to continue to drop in coming years as existing employment agreements expire and must be renegotiated under new amendments to the Companies Law.

The survey of information in the public companies' annual reports found that Israel's 100 top executives earned a total of 620 million shekels ($169 million) in 2012, about 150 million shekels ($41 million) less than in 2011.

The 20 leading managers on the list earned an average of more than 10 million shekels ($2.7 million) each. The lowest paid manager on the list earned about 4 million shekels ($1.1 million), and the average annual cost of the senior managers' compensation packages totaled 6.2 million shekels ($1.7 million).

Five women made it to the top 100 earners list, the same as in 2011, and all in companies controlled by women.

Proposed Salaries Law

Senior salaries would drop further under the terms of a pending “Salaries Law,” according to its parliamentary sponsor MK Zehava Gal-On. The bill would cap the amount of senior management salaries that can be expensed for tax purposes at minimum wage or 15 times the company's lowest wages.

“Managers of public companies shouldn't be earning incredible sums while their workers make minimum wage,” Gal-On said in response to the top earners report. “The bill creates an incentive for narrowing the salary gap by making huge salary payments to senior employees less worthwhile.”

Senior managers can currently exempt an unlimited amount of expenses, regardless of their total salary.

“Managers thus earn twice – once in their growing salaries and then by tax exemptions on expenses, which also reduce the taxes the company pays to the Tax Authority,” Gal-On said. “As a result [of the bill], salaries above 61,500 shekels ($16,100) per month would cease to be recognized for income tax exemption.”

“The proposal does not prohibit senior Israeli officials from taking inflated salaries, but rather ties them to the company's overall tax expenses and the lowest wages in society,” Gal-On noted. “The result will be a triple effect: an incentive to curb the sharp increase in senior salaries, encouraging an increase in the lowest wages in the same companies and increasing state revenues from company taxes.”

To contact the reporter on this story: Jenny David in Jerusalem at

To contact the editor responsible for this story: Rick Vollmar at

For more information on HR law and regulation, see the Israel primer.

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