That stark comparison is just one way to measure the growing gap between the incomes of corporate leaders and those of the people on whom they depend to generate revenue. By 9:47 a.m. on January 2, 2024 (the first day of work for many in the new year), Canada’s 100 best-paid CEOs would already have made roughly $60,600 – as much as the average Canadian worker will pull in for the entire year. The findings are contained in a new report on CEO pay released this month by the Canadian Centre for Policy Alternatives (CCPA).

The report tracked 234 companies on the S&P/TSX composite index and found that the average pay for the 100 best-paid CEOs jumped to $14.9 million in 2022 (the year the report measured), which is an increase of 4.4% from the previous year. The average highest-paid CEOs in 2022 made 246 times more than the average worker, or $7,162 an hour, the CCPA reports. That’s a new record and up slightly from the previous year, when it was 243 times. In 2022, the average worker in Canada got a raise of $1,800, or 3%, which was less than half of inflation and brought their salary to $60,600.

Other stark details: only four of the 100 CEOs were women (which matched the number of CEOs with the name Mark or Scott), while inflation, which is demolishing the purchasing power of most Canadians, has been fuelling companies’ profits and subsequently the swollen compensation of CEOs  because of a shift in their pay structure. In 2022, the average Mark made $18.5 million and the average woman made $11.7 million. That translates into the top CEO who is a woman making 63 cents for every dollar that a CEO named Mark makes.

“While the wave of inflation has been crashing down hard on regular Canadians, Canada’s 100 highest-paid CEOs have been riding it to another record-smashing year,” the CCPA says. “Inflation presented a once-in-a-lifetime chance for corporate Canada to jack up prices and pad their profit margins.”

The highest-paid CEO in 2022, according to the report, was J. Patrick Doyle, the executive chairman of Restaurant Brands International Inc., which owns Tim Hortons, Burger King and Popeyes; he pulled in $151.8 million that year. Next was Matthew Proud of Dye and Durham Ltd., a legal-software and payments-technology company, at nearly $99 million, and Seetarama S. Kotagiri, of auto parts manufacturer Magna International Inc., at $36 million. The bottom of the list was also the most lucrative it has ever been, with the lowest-paid of the top 100 CEOs, Randy Smallwood, of Wheaton Precious Metals Corp., pulling in $6.7 million.

The Corporate Knights research team also tracks the ratio of CEO-to-average-worker pay as part of its annual ranking of the 50 most sustainable corporate citizens in Canada. The CEOs of the companies that made the list earned 108 times more than the average worker in 2022, up from the 74-to-1 ratio in 2021. Hydro One (27th on the list) and Transcontinental (26th), a printing company, fared the best on this key performance indicator in 2022. Hydro One’s CEO earned nearly nine times what the average worker did, while Transcontinental came in at 22 times. On the other end of the spectrum, the CEO of Gildan Activewear, which ranked 24th overall, earned 713 times the average worker’s wage. The Corporate Knights Best 50 ranking traces public and private Canadian companies as well as Crown corporations with more than $1 billion in revenues.

It’s inflation that’s been ultimately driving these bonuses, due to historic profits in the corporate sector.

 

– Canadian Centre for Policy Alternatives

Report author and economist David Macdonald notes that it’s important to understand the shifting compensation mechanisms that have fuelled the growth in CEO pay. Salaries account for an increasingly smaller share of CEO pay; the average CEO salary  has been relatively constant at around $1 million a year, rising to $1.2 million in 2022. Bonuses tied to revenue, profit and stock prices are driving CEO pay now, he writes.

“It’s inflation that’s been ultimately driving these bonuses, due to historic profits in the corporate sector, which is interesting, given CEO pay is frequently claimed to be based on merit,” the report notes. In June 2022, after the height of the pandemic, annual inflation peaked at 8.1%. While corporations contended that their costs were going up and price increases were necessary to keep their businesses afloat, the CCPA reports that companies used inflation to “drive profits and margins way outside of historical norms.” That, in turn, has helped fuel the rise in CEO compensation.

The organization suggests some ways these earnings could be redistributed: by taxing the income of the highest earners more aggressively, reducing the tax deductions that corporations can claim related to CEO pay, and introducing a wealth tax.

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In response to heavy lobbying by institutional shareholders who see climate change as an existential risk, some 25% of U.S. public companies now include some form of environmental or social metric as part of their executive incentive plans, says proxy advisory firm Glass Lewis & Co. That’s up from just 16% two years earlier.

How fast are things moving? Just a year ago, U.S. financial giant Mastercard said that it would tie bonuses for its senior executives to three factors: cutting the company’s carbon usage, building financial inclusion and improving gender pay parity. Just this April, CEO Michael Miebach went one giant step further. In a sign that climate action and social development are everyone’s business, he announced Mastercard would offer sustainability-linked pay to all employees.

“Each and every one of us shares the responsibility to uphold our ESG commitments,” Miebach said. “That’s why we’re extending that model to our annual corporate score and all employees globally, taking our shared accountability and progress to the next level.”

Canadian companies lag behind in tying top executives’ pay to long-term ESG (environmental, social and governance) targets. For instance, mining giant Teck Resources ties 5 to 8% of its top five executives’ annual incentive payments to site-specific environmental risk management (e.g., reducing spills) and to social risks, such as community incidents or disputes. CIBC applies 10% of top executives’ business performance bonus to meeting diversity and sustainable-finance targets. 

Surprisingly, a 2019 survey of the proxy circulars of 196 Toronto Stock Exchange companies, conducted by advisory firm Compensation Governance Partners (CGP), found that 61% of those companies included sustainability metrics in their incentives. But researchers noticed a few flaws. While setting and achieving difficult ESG targets is long, complex work, just 3% of those programs involved long-term incentive plans. As well, only 1% of those companies weighed sustainability at more than 20% of their bonus payouts. 

How do we get more progress? In Canada, “shareholders and executives have been reluctant to fully embrace the integration of ESG targets into compensation metrics,” noted a recent report by CGP managing director Christopher Chen and Dov Begun, a lawyer with Osler, Hoskin & Harcourt. Sticking with the theme of “you get what you incent,” the authors invite Ottawa to get involved, “particularly through tax policy.” 

Among their recommendations: Ottawa should make it easier for taxpayers to defer income related to achieving ESG objectives and extend deferral periods to six years from today’s three-year standard. “Achieving critical objectives with a global and societal impact such as climate and social change will require innovative approaches in every corporate boardroom,” the authors say. “Canadians should demand the same commitment to innovation and agility from governments.”

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In simplest terms: do firms pay their employees a fair wage – or the lowest amount they can get away with?

Just Capital compared the financial performance of companies that pay relatively high wages to all their workers against industry peers that don’t offer premiums. Grinding through those companies’ financials through the economic downturn, job title by job title, Just Capital’s researchers found that the top 20% of firms enjoyed a 6.5% higher average annual return versus their industry peers. Companies whose miserly pay packets landed them in the bottom quintile were found to earn 3% less than their industry peers.

According to researchers Charlie Mahoney and Steffen Bixby, these results disprove the Dickensian notion that business profitability stems from keeping wages low and reducing labour costs. “Leading research shows that investing in workers – raising wages and providing strong benefits – improves business outcomes,” they write. “As companies are developing strategies to weather the current recession, they should start by considering how to improve the financial security of their workforce.”

In a similar study, the authors analyzed companies that pay a “living wage”; that is, enough money to enable a family to cover their minimum needs – including food, childcare, health insurance, housing, clothing and transportation. Again, generosity paid off.

The second study found that over the past 12 months, the top quintile of companies doling out a “living wage” achieved 12.3% better performance compared to their industry peers. Even the flintiest companies in the bottom quintile of the living wage bracket performed 1.1% better than the industry average.

Just Capital hopes this heaping helping of common sense will encourage more employers to offer employees higher wages and benefits. “Years of research have found that workers who do not have to stress about things like whether they can afford a doctor’s visit or medication stay with their companies longer, and are more engaged,” Mahoney and Bixby say. “It’s expensive to replace an employee, and a more engaged workforce is more productive.”

But common sense is never common. Prior to the pandemic, compensation surveys indicated that employers in Canada and the U.S. were expected to boost pay this year by 3.3% – a rate largely unchanged over the past nine years.

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