Citizen Action Monitor

New report outlines how Canada’s top CEOs raked in “boundless bonuses” in 2020

The report recommends five policy solutions to tackle extreme wealth inequality. —

No 2810 by fw, January 10, 2022 —

“Every year we [Canadian Centre for Policy Alternatives] examine trends in CEO compensation in Canada. General trends show that compensation for the highest-paid CEOs in Canada is impervious to external shocks, such as the 2020 COVID-19 pandemic. In fact, the highest-paid 100 CEOs in Canada had the second-highest average compensation levels in this country’s history during the pandemic. Canada’s 100 highest-paid CEOs got paid an average of $10.9 million in 2020, which is higher than their pay in 2019. As a result, those 100 CEOs now make, on average, 191 times more than the average worker wage in Canada. Before lunch hour on the first working day of 2022, January 4, Canada’s highest-paid CEOs will have already racked up the same amount of pay that will take the average worker the entire year to accrue.”David Macdonald

David Macdonald is a senior economist with Canadian Centre for Policy Alternatives’ National Office, and the author of CCPA’s new report titled: Another year in paradise: CEO pay in 2020.

Hands up those who believe that Trudeau’s neoliberal Liberals, friends of Big Business and The Ruling Class, will, without delay, propose policy actions to tackle extreme wealth inequality in Canada.  

Here is the Table of Contents of the 25-page report.

Page    Topic

4          Executive summary
6          Introduction
9          A third of CEO millionaires benefited from public subsidies
11        Boosting bonuses through formula changes
13        Top CEO pay
15        CEOs and the glass ceiling
16        Recommendations
18        Methodology

23        Notes

My repost, presented below in two short pieces, begins with a copy of a brief January 4, 2022 news release titled: Canadian CEO pay hits second-highest level in history: report, followed by a two-page Executive Summary, excerpted from the full 25-page report.

To read the complete, original versions of both documents, just lick on their linked titles below.

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Canadian CEO pay hits second-highest level in history: report by Alyssa O’Dell, CCPA Senior Communications Specialist, January 4, 2022.

Canada’s 100 highest-paid CEOs were paid an average of $10.9 million in 2020, higher than in 2019.

Canada’s 100 highest-paid CEOs from the S&P/TSX Composite recorded their second-best year ever for compensation in 2020 despite the COVID-19 pandemic, according to a new report by the Canadian Centre for Policy Alternatives (CCPA).

The report, Another Year in Paradise: CEO Pay in 2020, shows those 100 CEOs got paid an average of $10.9 million in 2020, which is higher than their pay in 2019. They now make 191 times more than the average worker wage in Canada.

At this rate it will take the average worker the entire year to accrue what Canada’s highest-paid CEOs will rack up just before lunch (11:54 a.m.) on January 4—the first official working day of the year,” says the report’s author, CCPA Senior Economist David Macdonald.

2020 was a horrible year for many workers hit hard by the pandemic, but CEO pay appears to be impervious to any shock to the system.”

Variable compensation—encompassing different forms of bonuses, such as cash bonuses and stock options—now makes up 82% of total compensation for top CEOs.

Bonus pay has been increasing in importance compared to salaries. If there is a singular reason why CEO pay is in the stratosphere, it’s because out of control bonuses are protected from going down, even in a pandemic,” Macdonald says.

Despite variable compensation being purportedly due to good performance, the report finds that among the richest 100 CEOs: 30 CEOs headed companies that received the Canada Emergency Wage Subsidy (CEWS), 14 saw their bonuses changed to protect them from the impact of COVID-19, and five experienced both.

The report recommends a range of policy solutions including:

    1. Capping the corporate deductibility at $1 million in total compensation per employee;
    2. Eliminating the capital gains inclusion rate loophole;
    3. Complete elimination of the stock option deduction for large companies;
    4. Implementing higher top marginal tax brackets;
    5. Introducing a wealth tax.

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Another year in paradise: CEO pay in 2020 / Executive Summary by David Macdonald, Canadian Centre for Policy Alternatives, January 2022

Executive Summary (pp 4-5)

Every year we examine trends in CEO compensation in Canada. General trends show that compensation for the highest-paid CEOs in Canada is impervious to external shocks, such as the 2020 COVID-19 pandemic. In fact, the highest-paid 100 CEOs in Canada had the second-highest average compensation levels in this country’s history during the pandemic.

Canada’s 100 highest-paid CEOs got paid an average of $10.9 million in 2020, which is higher than their pay in 2019. As a result, those 100 CEOs now make, on average, 191 times more than the average worker wage in Canada. Before lunch hour on the first working day of 2022, January 4, Canada’s highest-paid CEOs will have already racked up the same amount of pay that will take the average worker the entire year to accrue.

The rise of CEO compensation occurred even in companies that received pandemic government support, such as the Canada Emergency Wage Supplement (CEWS). Among the 100 best-paid CEOs in 2020, 30 CEOs headed companies that received the CEWS, 14 saw their bonuses changed to protect them from the impact of COVID-19, and five experienced both. The CEWS was meant to go to businesses that saw large declines in revenue during the worst of the pandemic, but some companies with the highest-paid 100 CEOs in Canada continued to pay their CEOs extraordinary amounts while receiving the CEWS.

Changes in bonus pay is a major driving force behind rising CEO compensation in good times and bad.Variable compensation”—encompassing different forms of bonuses—made up 82% of total compensation for the highest-paid CEOs in 2020. These bonuses have three broad components:
direct cash bonuses, payment in the form of company stock and payment in the form of options to buy stock in the future at prices set today. Variable compensation as a proportion of all compensation has risen from roughly 70% a decade ago to over 80% in the past two years. Salaries have become a less important part of CEOs’ total compensation.

Direct share awards continue to be the dominant form of CEO bonus compensation. This trend started in 2013 and has picked up pace since then. On the other hand, stock options and cash bonuses have declined somewhat in overall importance since 2013. Prior to July 2021, only 50% of the value of stock options was taxable. In July 2021 however, that 50% inclusion rate was limited to only the first $200,000 of stock options for large publicly listed corporations. Had the $200,000 limit been in place in 2020, 71 of the highest-paid 100 CEOs would have exceeded it. The tax savings for 71 people in 2020 alone due to this one tax loophole was $63.4 million.

This report proposes several measures to bring a greater modicum of fairness to CEO pay, including:

    1. Capping the corporate deductibility at $1 million total compensation per employee: At present corporations can deduct all executive compensation from their corporate taxes. The United States has implemented a $1 million cap on executive pay and Canada should too.
    2. Eliminating the capital gains inclusion rate loophole: The largest means of compensation for Canada’s highest-paid CEOs is awards in stock. Over time, this makes CEOs, specifically, and corporate executives, in general, enormous shareholders in a company. As shares increase in value, these highly paid people disproportionately benefit from the fact that stock prices gains are taxed at half the rate as regular income.
    3. Eliminating the stock option deduction for large companies: The stock option deduction saw an important cap of $200,000 come into force in 2021. The justification of a cap, instead of full elimination, was, in part, to provide incentives to tech startups. None of Canada’s highest-paid 100 CEOs are in tech startups, but they still receive this tax break. It should be removed for large companies instead of capped, so that stock option gains are taxed just like wages.
    4. Implementing higher top marginal tax brackets: The highest-paid CEOs also receive substantial compensation in cash bonuses in addition to their average salary of $1.2 million. This places them at the very top of Canada’s income distribution. Several thousand dollars to someone already making on average almost $11 million means much less than that same amount to someone making $50,000 or even $100,000. As such, new revenues can come from higher brackets at the top, with little evidence that these high-paid CEOs would quit their jobs and move to lower-tax countries.
    5. Introducing a wealth tax: The stock options and stock awards in this report are valued when they are given out, not when they are eventually sold. In most cases, executives are making far more upon sale than what is being reported. Large holdings of company stock as a result of these award types make the net worth gap between CEOs and average Canadians much larger than the 191 times income gap. To constrain this growing wealth inequality, a wealth tax should be introduced.

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One comment on “New report outlines how Canada’s top CEOs raked in “boundless bonuses” in 2020

  1. Pingback: New report outlines how Canada’s top CEOs raked in “boundless bonuses” in 2020 – Olduvai.ca

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