With hysteria running wild about paying anyone associated with the financial services industry a bonus, news that Israel’s best run and profitable bank, Mizrahi Tefahot, is looking to pay bonuses is big news. With countries looking to implement US Prez. Obama’s call for salary limits and no bonuses, Mizrahi Tefahot is bucking the trend. For good measure. Why shouldn’t employees who contribute to a successful and profitable business be rewarded for their hard work?
According to Globes: “Mizrahi Tefahot Bank is the only bank considering paying employee bonuses for 2008. Its return on equity in January-September was 12.1%, the highest in the banking system. Its profit was down just 4.3%, compared with the corresponding period of 2007, and compared with an 82% drop in the aggregate profits of the other banks. A knowledgeable source said that, given Mizrahi Tefahot Bank’s strong results, “it cannot be ruled out that its board will approve the payment of employee bonuses.”
It seems crazy to me that a bank in such a terrible climate has been run so well, and will not pay out bonuses. If quality management will not be compensated for their good work, why should they stay in their position? Who wants to be CEO if you aren’t going to make any money.
The board of Mizrahi Tefahot should approve the bonuses at once.
Aaron Katsman
www.IsraelNewsletter.com
It wasn’t long ago that the flag-bearer for corporate social responsibility, Ben and Jerry’s Ice Cream, went looking for a CEO. Problem was they couldn’t find a good one.
Why? Who wouldn’t want to be CEO of such a large and well-known company?
The problem was that they had made a stipulation in the terms that they were going to offer the candidate. They had a rule during the early 1980s that no employee could make more than five times what the lowest-paid worker was paid. That capped CEO pay at $81,000. What kind of well-qualified candidate would take a CEO position for that salary? No one. That’s why in ‘94 they scrapped that rule so that they could go out and get a good CEO.
Ever the demagogue, Israeli MK Shelly Yechimovich has drafted legislation limiting CEO pay to 50 times that of the lowest paid employee. She is doing this in the name of “social equality.” How will this create equality, Shelly? It won’t improve the financial lot of the lower paid employees; in fact, it will hurt them the most. How? Because they won’t get hired. If there is no financial incentive for a CEO to do a good job, then he won’t and business will stagnate, and there will be no expansion, i.e. no one new will get hired.
Executives have much more of an impact on the business than workers making the minimum wage. In fact, many times CEOs are actually the owners of the business, meaning that that have all the risk associated with failure as well. It’s a basic rule of investing: Risk vs. Reward. The more you have on the line, the more you should be able to make.
Already facing a “brain drain” with the best and brightest Israeli academics leaving Israel for greener pastures, if this legislation became law, the same thing would happen in business, something Israel can’t afford.
It’s important to note that MK Yechimovich has no business experience. She was a journalist and gained fame with a political radio show. What gives her the authority to tell us how to run a business?
Shelly, if you really want to help, stop meddling in our lives, and let us live freely, without government intrusion into every facet of society.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
