Recession-Proof: Canada's Highest Paid CEOs
Jan 05, 2011
capital, gains, highest, loophole, paid, review
By the time you’ve read this, the average of the best-paid public company CEOs in Canada will have already pocketed what it would take the average Canadian working full-time an entire year to earn. In fact, many will have earned many times more than that.
Although Canada is still struggling to extricate itself from the economic meltdown of 2008, Canada’s business elite has preserved its privileged position.
In a new report released by the Canadian Centre for Policy Alternatives, Hugh Mackenzie points out that the total average compensation for Canada’s best paid 100 CEOs in 2009 was more than $6.6 million. This is in dramatic contrast to the total average Canadian income that year of just under $43,000. Even during the worst of the recession, Canada’s best paid 100 CEOs earned, on average, 155 times more than Canadians earning an average income.
And the news gets worse. These CEOs are sitting on previously granted stock options. When these individuals decide to exercise them, Canadians will then subsidize these stock bonuses in lost taxes. That’s because stock options are taxed as if they were capital gains rather than ordinary income. As a result, nearly one third of these CEOs reported income for 2009 (and the entire amount of their capital gains) is only taxed at half the rate paid on normal wage and salary income.
Armine Yalnizyan and others have done extensive work on the widening gap between the rich and the poor in Canada. But nowhere is it as dramatic as when comparing CEOs with the rest of the population. And it is growing exponentially faster than any other disparity between income groups – in 1995 the average pay of Canada’s 50 highest paid CEOs was 85 times the salary of the average worker. By 2009 these CEOs were making 219 times the pay of the average Canadian worker.
It’s evident that rewarding already grossly overpaid CEOs with stock options because of rising stock prices is foolish and just compensates them for something they have little influence over. CEOs don’t affect the price of gold or the cost of a gallon of oil. But it doesn’t matter – companies tie bonuses to rises in share prices.
And when all of the top companies are doing this, who wants to be the first to slash salaries or bonuses of its CEO? Nobody, because what overpaid CEO would then want to work there? It’s a classic prisoner’s dilemma. Every corporation would be better off if they all paid their CEOs less, but if only one does it then they are the ones that lose.
So the only real solution at the end of the day is to increase taxation levels for those at the top of the economic pyramid. And, perhaps more importantly, the Canadian government should close the loophole that allows the proceeds from cashing in stock options to be taxed as if they were capital gains.
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I agree, the taxation loophole should be closed, but I'm sure their accountants would find some other way to dodge the system. The fact is the uber-rich continue to get richer because no government will force them to pay their fair share in taxes, and if they did, they'd just move their headquarters somewhere else.
Jerry - 2011-01-06 14:01
This information is critically important as we head into what appears to be an imminent federal election. Let us arm ourselves with data to refute the poloitical platforms of lowering taxes for the rich, individuals and corporations. We also need to denounce the PM's obsession to get rid of the $2.00 per vote subsidies to the politiical parties. That subsidy is negligible compared to the millions of dollars of tax-payers dollars which are used as tax-deductions, which measn that those who can afford to make cash donations to political parties get 75% back on their income tax returns. For every $100, the contributer gets $75.00 back! Since the large parties benefit a great deal from this deduction, it is akin to tax-payer dollars that are subsidizing those contributions. The $2.00 per vote is far more transparent. No wonder, Mr. Harper has no qualms about cancelling this basic political subsidy. His party benefits many times over from this other tax benefit.
Gisele Roch - 2011-01-21 17:36