Abstract
In this paper, I examine determinants and trends in top executive compensation in Israeli publicly traded firms between the years 1995–2018. I find a large increase in executive compensation in the earlier period of the sample culminating in 2007, especially in financial firms. Between 2008 and 2018, compensation decreased significantly, again especially in financial firms. As a result, the average executive compensation in financial firms has neared the level of the average executive compensation in nonfinancial firms. The average ratio between top executive compensation in public companies and the average compensation per employee position in 2018 has decreased below its 1995 levels, because of a higher increase in average compensation per employee position during this period. My results show that this decrease in executive compensation can be attributed mainly to regulations that were implemented in Israel in the last decade. Consistent with prior studies, I find that company size is the most important determinant of executive compensation. Pay-performance sensitivity is weak compared to other countries. After the main regulations were implemented, pay-stock performance sensitivity has weakened in financial firms while pay-accounting performance sensitivity has strengthened. In non-financial firms, however, there was no change in pay-accounting performance sensitivity in this period, while pay-stock performance sensitivity increased.
Keywords: Executive compensation, Performance, Regulation