Executive Compensation in Canada: A Deep Dive into the 2023 Landscape
The year 2023 witnessed a slight cooling in the historically escalating trend of CEO compensation in Canada. According to the Canadian Centre for Policy Alternatives (CCPA), the average compensation for the top 100 highest-paid CEOs reached $13.2 million, marking the third-highest figure since the CCPA’s tracking began in 2007. This represented a decline from the record-breaking levels observed in 2021 and 2022, attributed to factors such as decreased corporate profits and increased worker wages in response to inflationary pressures. Despite the decline, the 2023 average remained significantly elevated compared to historical data, highlighting the persistent disparity between executive pay and worker earnings. This gap widened further in 2023, with the top 100 CEOs earning an average of 210 times the average worker’s income, a stark increase from the 104-fold difference observed in 1998.
The composition of CEO compensation reveals a growing reliance on non-salary components. Salaries constitute a diminishing proportion of total compensation, with some executives even opting for symbolic $1 salaries. The bulk of CEO earnings derives from forms such as share-based awards, option-based awards, and cash bonuses. While bonuses are theoretically linked to company performance, the CCPA’s analysis suggests a tendency for bonuses to increase regardless of corporate outcomes. The prevalence of share-based awards and stock options underlines the significant role of equity-based compensation in executive pay packages. This shift has important implications for tax policy and wealth accumulation among top earners.
The CCPA report highlights the dominance of men in the upper echelons of corporate leadership. Only three women made the list of the top 100 highest-paid CEOs, outnumbering CEOs named Michael and outnumbering CEOs named Scott. The report also underscores positive developments, such as substantial wage gains for workers in 2023, partially offsetting inflationary pressures. Interestingly, the three women CEOs on the list earned more on average than their male counterparts named Michael and Scott. This nuanced perspective underscores the complex interplay of factors influencing executive compensation.
Policy changes implemented in recent years aim to address the widening gap between executive pay and worker earnings. The 2024 increase in the inclusion rate for taxing capital gains above $250,000 for individuals, now exceeding 66% (compared to 100% for employment income), represents a significant step toward greater tax fairness. However, the effectiveness of this measure hinges on the realization of capital gains, which occurs only when stocks are sold. The potential for delayed realization through stock retention raises questions about the immediate impact of the policy change.
Another noteworthy policy adjustment is the 2021 federal cap on the stock option tax deduction at $200,000 annually. This cap has demonstrably influenced CEO pay, significantly reducing the reliance on stock options as a compensation mechanism. Consequently, a shift towards direct share awards is observed, reflecting the altered tax landscape. This change highlights the responsiveness of executive compensation strategies to policy interventions.
Challenging the conventional narrative of high CEO pay as a necessity for attracting top talent, the CCPA report reveals that most CEOs on the list rose through the ranks within their respective companies, averaging 21 years of tenure. This finding undermines the argument that exorbitant compensation packages are essential for attracting and retaining qualified executives. Instead, it suggests that internal promotions and long-term career development play a more significant role in shaping executive leadership.
The CCPA report proposes policy recommendations aimed at mitigating income inequality. These include a wealth tax targeting Canadians with a net worth exceeding $10 million, projected to generate $32 billion annually. This direct approach contrasts with the indirect mechanisms of addressing stock options or capital gains taxation. Additionally, the report advocates for higher top marginal tax brackets, citing historical precedents of higher rates for the wealthiest earners in the postwar era. The current top marginal tax rate of approximately 50% stands in stark contrast to the 70% range observed in previous decades.
In conclusion, the 2023 CEO compensation landscape in Canada reveals a complex interplay of factors. While overall compensation levels declined slightly from record highs, the gap between executive pay and worker earnings remains substantial. Policy interventions targeting capital gains taxation and stock options have begun to reshape compensation strategies, but the long-term impact remains to be seen. The dominance of men in executive roles persists, though the higher average earnings of women CEOs on the list offer a counterpoint. Furthermore, the finding that most top CEOs are promoted from within challenges the conventional justification for exorbitant compensation packages. The CCPA’s recommendations for a wealth tax and higher top marginal tax brackets signal a push towards greater income equality. The ongoing debate surrounding executive compensation will continue to shape the future of corporate governance and economic policy in Canada.
