Good morning. Grab some orange juice and get ready: Not long after the average worker has eaten breakfast today, Canada’s highest-paid CEOs will already have earned that worker’s full annual salary.
That works out to about $58,800 at 9:43 am on January 3, one day and 43 minutes after the first official business week of the new year (including the Monday paid holiday).
According to a report released Tuesday by the Canadian Center for Policy Alternatives (CCPA), an Ottawa-based think tank that focuses on social, economic and environmental issues, the 100 highest-paid CEOs in Canada now earn 243 times more than the typical worker earns.
“At a time of hardship for workers dealing with inflation and at a time when we’ve seen economic growth, the fundamental question of who benefits from economic growth really comes up,” he said. David Macdonald, a senior economist at the CCPA and author of the report.
“Is it all Canadians, or is it really just the people at the top that see these massive pay packages?”
Some experts say the problem is not directly how much executives earn, but how they do it. Among the think tank’s suggestions for closing the pay gap is a wealth tax, though that could pose its own problems.
The gap is growing ‘rapidly’
Canada’s highest-paid executives earned an average of $14.3 million in 2021, according to the CCPA report, which analyzed data from companies in the S&P/TSX Composite Index.
Meanwhile, the average private sector worker earned just under $58,800 in 2021, according to Statistics Canada data — a three percent increase from the $57,000 average in 2020.
“The problem is not that CEOs are paid more than the average worker. They certainly should be paid more than the average worker,” Maconald said. “The issue here is how fast the gap is growing.”
As inflation rates began to rise in 2021 amid the COVID-19 pandemic, some companies said they would increase consumer prices to account for supply chain disruptions and labor shortages. .
This year, the economy began to recover from its initial paralysis by the pandemic, but critics alleged that companies were taking advantage of a rise in inflation to make a significant profit and allowing executives to collect significant bonuses based on company performance.
The CCPA report says that CEOs at the top level earn only eight percent of their income from an actual salary. He notes that in recent years, there has been increased reliance on “bonus-type compensation” which is theoretically based on profit, revenue and company performance.
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“The criticism that I will and can make is not how much they get paid, but how they get 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 result that the board of directors wants the CEO to achieve or deliver.”
That means bonuses, also called variable compensation, can be tied to just about anything, from a corporate social responsibility rating to an environmental, social and governance (ESG) score. They can be categorized as cash bonuses, stocks, or stock options.
“The job is incredibly demanding to be a successful CEO… They are paying these people, these executives from these very large and complex corporations to get certain results,” Lee said. “And the minute you don’t deliver, you’re out the door.”
But even as some companies introduced revisions to their executive compensation policies, many CEOs were shielded from pay cuts. The report says that variable compensation is capped downward, but not capped upward.
“When times are bad, you change the rules in terms of how bonuses are paid,” Macdonald said.
The wealth tax is not a clear solution
The report makes several suggestions on 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 the corporate deductibility for compensation above $1 million, or introducing higher top marginal tax brackets.
In particular, he suggests imposing a small wealth tax on the wealthy.
Cost of living10:23Calls to tax the rich
The federal NDP says it plans to lobby federal Liberals for a “tax on the ultra-rich”. The 1% tax on wealth over $10 million could bring in billions, but critics warn it could also lead to an exodus of capital. Tracy Johnson looks to Europe, where several countries imposed a wealth tax in the 1990s, but most have since abandoned the idea. Why?
Donna Hokiro, president of United Steelworkers Local 1944 in Edmonton, said any potential estate tax “must do what it’s designed to do.”
“If the goal is to take excessive amounts of wealth and return it to communities and make it easier for people not to live in poverty, I’m all for it,” he said.
The idea of a potential tax on the wealthy is not new to Canada: The NDP has listed it as a top policy priority, saying federal revenue could be used to reinvest in healthcare and housing. Others say it could have unintended consequences.
“Yes, you can raise taxes a lot more, but then you risk causing a brain drain,” Lee said, adding that the market for executive-level talent in Canada is “very, very, very small.”
“These returns are for that small number of people who, no matter how they do it, no matter how they’ve developed their skills, can offer on the sidelines what others can’t.”
At the end of 2021, year-on-year inflation was 4.8 percent. Inflation included, the average worker received a 2 percent pay cut, while the average salary of the richest CEOs increased by 26 percent, according to the report.
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