Canadian CEO pay
Turns out, there’s no point to anything anymore. By the time you had woken up today, brushed your teeth, checked Facebook and responded to a couple of work emails, 100 of the highest-paid Canadian CEOs individually earned more than your annual salary.
This latest reality check/piece of pessimism comes from a new report by the Canadian Centre for Policy Alternatives, a left of centre think-tank that has been tracking executive compensation over the last decade.
Total compensation, on average, of the top 100 CEO’s in Canada in 2015, was a jaw-dropping $9.5 million — 193 times the average wage in Canada. If you break this down according to time, by 11.47 a.m. today, members of this exclusive elite club would have earned roughly $50,000 — what the average Canadian makes in a year. To drive home the point that 2017 will probably be no better wage-wise for most of us than 2016, it would have taken half an hour longer last year — until 12:18 p.m. — for these CEOs to to make our entire annual salary. Things are only getting worse.
Another sad statistic from the report, is that the top-paid Canadian CEOs make as much as 410 minimum wage workers. Sit with this graph for a bit, and process the injustice of it all.
So how exactly does one get paid $9.5 million in a single year? With a whole lot of company stock, it turns out. On average, the base pay of a Canadian CEO last year was $1.1 million. $1.8 million was the average bonus earned, $4.3 million was grants of shares, and $1.5 million was the value of grants of stock options.
That effectively means that more than half of total executive compensation is made up of the value of the CEO’s ownership in the company, in the form of shares to his/her name. The idea behind that, just to digress for a moment, is tied to ensuring that a CEO’s primary focus is the performance of the company’s share price. The more a firm’s shares are worth, the more the CEO stands to personally gain.
To hell with the economy
Average CEO compensation, according to the report, has not only grown over time (it has increased 179 percent since 1998), it seems to be extremely resilient to economic downturns. This is in stark contrast to the sensitivity of the average Canadian wage during a recession.
“The general path of CEO pay in Canada has been remarkably resistant to the state of the economy in general, and to the major driver of Canada’s short-term prosperity, that is, the price of crude oil,” the report’s author, Hugh Mackenzie told VICE Money.
“When oil prices his their peak in 2013, there were definitely more oil company CEOs on that top 100 list. But when oil prices went down, very few of them suffered a significant drop in compensation,” Mackenzie said.
Who are these lucky buggers?
Pretty unsurprisingly, the top 100 highest-paid CEO list includes five people named Marc or Mark, five named Michael, four named Al, Paul, John and Steve, and three named Brian, Charles and Donald. There were two women in that top 100 list.
“There’s a sort of prisoner’s dilemma situation going on here,” said Mackenzie when asked why exactly CEOs get compensations that are so, ridiculously high.
“The board of directors are usually reluctant to lower CEO pay on the fear that they won’t get a particular individual that’s been hailed as the best in the industry. And then you have this assumption that everyone who is CEO-material is above average. So you’re in a playing field where you’re building a compensation package for those who are supposedly the smartest people in the corporate world.”
The tax solution to wage inequality
The CCPA report strongly suggests that the Liberal government follow through on its campaign promise to tax income from stock options as ordinary income. Currently, in Canada, any kind of income you earn through stock options is taxed at half the rate of your regular income — a tax break, that according to Mackenzie, is worth billions to Canadian executives.
There is effectively very little point increasing the marginal tax rate on high earners, because corporations smartly change their compensation plans, awarding very little in base pay, and much more in bonuses, stock options, and stock grants.
The key, says Mackenzie, is to make changes in the system that change the incentives that are driving up executive compensation so much.
“The Liberal government, unfortunately, seems to have been bamboozled by lobbies representing the beneficiaries of our current tax bracket for stock options. They are backing away from their campaign promise to tackle the overcompensation of Canadian CEOs,” claims Mackenzie.
Vanmala is VICE Canada’s Money & Economics Editor. Follow her on Twitter.
Photo: Michael Pearson, the former CEO of Valeant Pharmaceuticals earned almost $183 million in 2015, making him the highest paid CEO in Canada that year.