On the first working day of 2019, Canada’s richest chief executives will have made what an average worker earns in a year by 11:33 a.m., a new study found.
The Canadian Centre for Policy Alternatives looked at the 100 highest-paid CEOs of companies listed on the S&P/TSX Composite Index. The left-leaning think tank’s annual report found they raked in $10 million on average in 2017, the most recent year with available data. That’s 197 times more than the average worker.
The compensation figure is slightly less than the year before, when they made $10.4 million.
“This year’s average is still the second-highest since we began keeping track,” wrote the report’s author, David Macdonald.
Hudson’s Bay Co. (HBC.TO) Interim CEO and Executive Chairman Richard Baker topped the ranking, followed by Magna International Inc. (MGA) CEO Donald Walker, and Canadian Pacific Railway Ltd. (CP.TO) President and Chief Executive Officer Keith Creel.
Baker’s total compensation amounted to $54,847,131, bolstered by a $37,247,123 share-based award. Walker made $26,436,899, and Creel brought home $20,105,600.
Meanwhile, the average worker saw their pay jump by 2.1 per cent to $50,759 in 2017, from $49,738 the previous year. The bump dwarfed the dismal 0.5 per cent increase in 2016, but Macdonald notes the increase was surprisingly low given the current tightness in the labour market.
“This supposedly more competitive job market is not yielding markedly higher average wages, and ordinary workers aren’t gaining on CEOs,” he wrote. “The CEO-to-average-worker pay gap has been a consistent reminder that there is immense wealth circulating through the economy — it’s simply not making its way into the hands of the average worker.”
Unlike average workers, the overwhelming bulk of executive compensation comes in the form of bonuses, not wages. The Canadian Centre for Policy Alternatives said 77 per cent of total pay for the richest CEOs was “variable pay,” defined as “bonuses including cash, stock and options to buy stock.”
One third of CEO pay was found to be bonus cash tied to the company’s stock price. Hudson’s Bay shares tumbled 14.48 per cent in 2017. Magna and CP Rail both surged 27.92 per cent and 20.84 per cent, respectively.
Macdonald noted that stock-options were back in vogue in 2017 after falling out of favour since 2014. It’s a trend he said could be due to the Liberal government’s 2015 campaign promise to examine related tax policy.
“That proposal has lost steam and no substantive action has been taken on it since the election,” Macdonald wrote. “With their preferential tax treatment now firmly set in place, the popularity of stock options among CEOs seems to have returned — they climbed from
15 per cent to 25 per cent of CEO pay between 2016 and 2017.”
Macdonald warns that while bonus-heavy pay tied to stock performance is meant to keep executives accountable to shareholders, it may also see long-term growth priorities sacrificed to fuel short-term gains.
“With Canadian stocks now held on average for less than a year, linking CEO pay to shareholders’ interests could easily be destructive to a company’s long-term interests amidst such high stock turnover,” he wrote. “There is a strong incentive to forego long-term investments that may depress present-day profits in favour of short-term decisions, like underinvestment, that will boost current profits and stock prices.”