Do Canada's top CEOs really work 184 times harder than the rest of us?
According to a new report by the Canadian Centre for Policy Alternatives' Hugh Mackenzie, the country's top 100 CEOs will have made what the average worker makes in a year by lunchtime today.
In 2014, total compensation for this group of corporate executives amounted to a whopping $896 million — that's 184 times the average Canadian wage. Here's what that pay discrepancy looks like:
That $896 million dollar figure exceeds the budgetary deficits in 2014–15 for every province in Canada with the exception of Ontario, Quebec, and Newfoundland and Labrador. And based on last year's earnings, Canada's highest paid CEOs had made the same as the average worker as of 12:18 PM this afternoon, having already eclipsed the average minimum-wage worker’s yearly earnings by 2:07 p.m. on New Year’s Day.
CEOs cashing in on tax loophole
Calculating the total earnings of Canada's highest paid CEOs is more complicated than you'd think. That's because most CEOS receive a substantial share of their earnings through means other than their base salaries, including bonuses, shares, and stock options.
For example, while Donald Walker of Magna International (Canada's second highest paid CEO) earned a base salary of $358,924 in 2014 he received an additional $11,634,643 in bonuses, $7,757,165 in shares, and some $3,473,275 in stock options.
Stock options offer executives the option to buy a given number of company shares at a pre-determined price and profit from the difference when their value rises. In Canada, only 50% of that income is subject to tax.
As Mackenzie writes:
"When a CEO actually exercises previously granted stock options (i.e., exercises his or her right to buy the stock at the pre-determined price) the income crystallized in the transaction is taxed at half the normal rate, as if it were a capital gain rather than ordinary income. So from an after-tax perspective, a dollar received from the exercise of a stock option is worth two dollars of salary income. The difference in tax paid—half the top marginal rate of taxation, or 26% on average across Canada—amounts to a public subsidy paid to these already highly compensated executives."
Of the highest paid 100 CEOs in Canada, 63 received some compensation in the form of stock options.
While Canada's new Liberal government campaigned on ending favourable treatment of stock options, Finance Minister Bill Morneau has indicated that this may only apply to future stock option grants.
As a result, Mackenzie writes, Canada's largest corporations and their well-paid executives may therefore have plenty of time to find new ways of earning astronomically more than the rest of us ... and with a smaller tax burden to boot.