Top CEOs earn more by lunch than average worker

Before lunchtime, Canada’s highest-paid CEOs were projected to earn

TORONTO — Before lunchtime Tuesday, Canada’s highest-paid CEOs were projected to earn as much as the average working person does all year, says a report released by a think tank that tracks executive compensation.

The Canadian Centre for Policy Alternatives estimates this year’s elite group of chief executive officers will earn the average, full-time Canadian wage by 11:47 a.m. on Jan. 3, the first working day for many Canadians. Last year, it would have taken until 12:18 p.m., the report said.

Hugh Mackenzie, a Toronto-based economist who wrote the report, said the clock analogy is a powerful way to illustrate a widening gap between what top executives get paid and what average Canadian workers earn.

“That serves as a very potent symbol, I think, of the growth of income inequality,” Mackenzie said.

But University of Waterloo political scientist Emmett Macfarlane, who deals with social policy in his first-year introduction to government classes, questioned the report’s focus on CEO compensation.

By many measures there’s been a decline in poverty in Canada during the 21st century after a big jump in the 1980s and 1990s, said Macfarlane, whose research focuses more on people at the low end of the income spectrum.

“I think that CEO pay is just such a narrow, slim piece of the picture — considering all of the other data we have and things we can look at — that I kind of question the value of this,” he said.

Mackenzie, who is also a research associate with the Canadian Centre for Policy Alternatives, said one problem with huge CEO paydays is that they are often based on stock grants and stock options that may encourage short-term thinking.

He said the trend towards higher executive compensation has been fairly consistent in recent years regardless of economic cycles and shareholder attempts to get more say on what companies pay their CEOs.

The federal government could play a role in levelling the playing field, he added, suggesting the most promising alternative would be a change in taxation policy as the Liberals promised during the last election.

“The proceeds of stock options in Canada are taxed at half the rate of ordinary income,” Mackenzie said.

“One of the things that I’m going to be watching with some interest is what the government does in its next budget with respect to that campaign commitment.”

After releasing the Liberal government’s first budget last March, Finance Minister Bill Morneau said he’d heard objections from startups that use stock options as a tool to attract talent. A spokeswoman for Morneau didn’t respond to requests Tuesday for comment on the government’s current stance on limiting stock-option compensation.

Most of the year-over-year increase in the report released Tuesday was due to one person — Michael Pearson, formerly CEO of Valeant Pharmaceuticals (TSX:VRX), who vaulted to No. 1 with $182.9 million of compensation in 2015 from No. 15 at just under $11.35 million in 2014.

According to the report, that was mostly due to $179.4 million in stock compensation in 2015, a year when the company was for a time Canada’s most valuable because of the value of its shares on Canadian and U.S. stock markets.

However, a Valeant proxy circular for shareholders last April said all of the stock compensation recorded in 2015 for Pearson would have been forfeited when he left the company in 2016 because Valeant’s stock fell below a specified threshold.

Since hitting its peak value in 2015 under Pearson’s leadership, Valeant has lost more than 90 per cent of its market value following a series of problems, including U.S. investigations into price hikes for some of its drugs.

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