By 9:43 a.m., Canada's richest CEOs have already earned the average worker's annual salary
Issue isn't how much CEOs make but how they make it, says management professor
Good morning. Grab some orange juice and brace yourself: Not long after the average worker has eaten breakfast today, Canada's highest-paid CEOs will have already earned that worker's entire annual salary.
That means about $58,800 by 9:43 a.m. on Jan. 3, one day and 43 minutes into the first official work week of the new year (including Monday's paid holiday).
According to a report released on Tuesday by the Canadian Centre for Policy Alternatives (CCPA), an Ottawa-based think-tank that focuses on social, economic and environmental issues, the 100 best-paid chief executive officers in Canada now make 243 times what the typical worker earns.
"In a time of difficulty for workers facing inflation and at a time when we've seen economic growth, it really raises the fundamental question of who benefits from economic growth," said David Macdonald, senior economist at the CCPA and the report's author.
"Is it all Canadians, or is it really just the folks at the very top who see these massive pay packages?"
Some experts say that the issue isn't directly how much executives make, but rather how they make it. Among the think-tank's suggestions to close the pay gap is a wealth tax — though that could pose issues of its own.
Gap is 'rapidly' growing
The best-paid executives in Canada earned an average of $14.3 million in 2021, according to the CCPA's report, which analyzed data from companies on the S&P/TSX Composite Index.
Meanwhile, the average private-sector worker made just under $58,800 in 2021, according to data from Statistics Canada — a three per cent increase from the average of $57,000 in 2020.
"The issue isn't that CEOs get paid more than the average worker. Certainly, they should get paid more than the average worker," Maconald said. "The issue here is how rapidly the gap is growing."
As inflation rates began creeping up in 2021, in the midst of the COVID-19 pandemic, some companies said they would raise consumer prices to account for supply chain disruptions and labour shortages.
That year, the economy started to recover from its early-pandemic paralysis, but critics alleged that the companies were taking advantage of an increase in inflation to turn a significant profit — and allowing executives to collect significant bonuses based on company performance.
The CCPA's report says that those CEOs in the top tier earn only eight per cent of their income from an actual salary. It notes that during the last few years, there has been an increased reliance on "bonus-type compensation" that, in theory, is based on company profits, revenue and performance.
"The criticism I will make and can be made is not how much they're paid, it is how they are paid," said Ian Lee, an associate professor of management at Carleton University's Sprott School of Business in Ottawa.
"You can structure the compensation contract however you want.... It can be any measurable deliverable that the board of directors wants the CEO to perform or deliver."
That means bonuses, also called variable compensation, can be tied to almost anything — from a corporate social responsibility ranking to an environmental, social and governance (ESG) score. They can be categorized as cash bonuses, shares or stock options.
"The job is unbelievably demanding to be a successful CEO.... They are paying these people, these executives of these very large, complex corporations to deliver certain results," Lee said. "And the moment you don't deliver, you're out the door."
But even as some companies introduced revisions to their compensation policies for executives, many CEOs were protected from pay declines. The report says that variable compensation is capped on the downside — but not the upside.
"When times are bad, you change the rules in terms of how bonuses are paid," Macdonald said.
Wealth tax not a clear solution
The report makes several suggestions as to how the pay gap can be closed. Among them are closing the capital gains inclusion rate loophole (which the average worker can't access), limiting corporate deductability for compensation over $1 million or introducing higher top marginal tax brackets.
Most notably, it suggests imposing a small wealth tax on the rich.
Donna Hokiro, president of United Steelworkers Local 1944 in Edmonton, said that any potential wealth tax "needs to do what it's designed to do."
"If the aim is to take excessive amounts of wealth and put it back into the communities and make it easier for people to not live in poverty, I'm all for it," she said.
The idea of a potential tax on wealthy individuals isn't new to Canada — the NDP has called it a top policy priority, saying that the federal revenue could be used to reinvest in health care and housing. Others say it could have unintended consequences.
"Yes, you can drive the taxes much higher, but then you risk causing brain drain," Lee said, adding that the market for executive-level talent in Canada is "very, very, very small."
"These returns are to those tiny numbers of people who, however they do it, however they've developed their skill sets, are able to deliver at the margin what others can't."
By the end of 2021, year-over-year inflation was 4.8 per cent. With inflation included, the average worker took a two per cent pay cut, while the average pay for the richest CEOs was bumped by 26 per cent, according to the report.
Clarifications
- This story was updated to clarify that the top-paid CEOs will make an average worker's salary one day and 43 minutes into the first official work week of the year, including Monday's paid holiday.Jan 03, 2023 9:49 AM ET
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With files from Philippe de Montigny, Nisha Patel and Laura MacNaughton
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