Canada’s 100 highest-paid chief executive officers earned 209-times more than the average worker in 2016, according to a new report by the Canadian Centre for Policy Alternatives.
Its annual report found the income gap between Canada’s top executives and the average worker is at record highs, as the average chief executive officer made $10.4 million in 2016 compared to the average income of $49,738. During 2016, pay for the average employee rose by 0.5 per cent, a $228 increase from $49,510 to $49,738. On the other hand, Canada’s chief executive officers saw an average pay hike of eight per cent.
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Pay for top executives is moving away from a simple salary toward all-out incentives, according to the report, which noted that their base salary made up 11 per cent of total compensation in 2016, compared to 14 per cent in 2008.
The report also found that the highest-paid chief executive officers received generous pensions equal to about three per cent of their pay, or $339,000 on average in 2016. And the rest (86 per cent) of their compensation is derived from the ups and downs in the price of their company shares.
For instance, chief executive officers are typically granted a bonus — worth $2.7 million on average — that’s related to whether the company stock price goes up. In addition, they’re paid in shares, a component of their overall compensation that was worth $3.4 million on average in 2016.
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“The idea behind this is that if the stock price goes up, presumably as a result of their good performance, then the value of their shares goes up and they make more money as a reward,” stated the report. ”Based on this same logic, CEOs are also awarded stock options (averaging $1.5 million in value in 2016), which let them buy their company’s shares at a locked-in price to immediately sell them at a profit for whatever the stock market is paying. Options are worth on average 1.5-times the value of a CEO’s cash salary.”
The report notes it’s unlikely that any one measure, such as increasing the transparency of executive compensation or making minor changes to tax measures, would curtail overall growth in chief executive officer pay. However, it urges the government to consider more comprehensive tax reforms, such as eliminating the capital gains partial inclusion on any share-based compensation granted to executives.
“This would have the double benefit of increasing tax revenues, which could be put towards social programs that help everyone while reducing inequality, and improving CEO performance, which is currently skewed by the prevalence of stocks in overall compensation,” stated the report. ”Ultimately, a more coordinated strategy across several tax measures is likely necessary to rein in overheated CEO pay.”
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