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Knesset Affixes Maximum Ceiling of Exec Pay In FIs Aiming To Reduce Wage Disparity

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March 31
6:14 AM 2016

Knesset, the unicameral national legislature of Israel, has accorded the second and third readings to the bill limiting the compensation of senior managers in financial institutions on Monday night. The bill has been passed following voting in favor by 56 members of Knesset while witnessing opposition from none.  

The most important provision of the bill turned law affixes maximum compensation of the highest paid employee in a financial institution. The maximum compensation must not exceed 44 times compared to that of the lowest paid employee.

All new employees will fall under circumference of the new law with immediate effect and the rest within next six months. Notably mentioning, the bill has been passed with support from both the coalition and opposition, reports Globes.

The newly promulgated law bears moral significance leaving far behind its economic meaning. It also symbolizes the closing of gaps, solidarity and consideration with the weak, reports The Jerusalem Post quoting Moshe Kahlon, the Finance Minister of Israel.

The law limits tax breaks at NIS 2.5 million per year. The figure may also be compared as 35 times the employer cost of a worker including his benefits.

The legislation has been proposed by Likud MK Miki Zohar with support from the finance minister. The latter has reached an agreement on the deal with Knesset Finance Committee chairman MK Rabbi Moshe Gafni before the voting takes place, according to a report published in Hamodia.

However, the law permits institutions paying their executives as per their decision subject to payment of excise on the amount being paid in excess of the limit. Statistics of several studies over the matter suggest that salaries of many top executives in the financial system are as much as 100 times greater than those of lowest paid workers.

Moshe Gafni considers the law as an important start in combating wide wage disparities. Shelly Yacimovich, a Zionist Union MK observes the law as the most moral one the Knesset has ever passed. Notably mentioning, a similar law has backfired in the US.

In 1993, the then President Bill Clinton has sought limited tax breaks on compensation over $1 million and eventually failed. The law allows exemptions based on certain performance goals.

Now a day, executive pay packages remain high along with non monetary compensation in the form of stock and options. However, the new Israeli law is applicable only for the salaries.

On Monday night, Knesset has probably passed the most moral law in its history. The Israeli parliament has passed a bill that imposes excise over the amount of executive pays beyond the maximum ceiling limit. The law has been supported by both the coalition and opposition members of the parliament.

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