Narrowing the inequality wage gap
TheStar.com – Opinion/Editorials – U.S. securities regulator rules that all companies must disclose the pay gap between CEO and workforce
Aug 10 2015. Editorial
In the first seven months of this year, Canada’s top 100 CEOs each pocketed an average of $5.5 million, and counting. That’s a moon shot away from the average Canadian worker’s earnings, around $28,300 for the same period.
Those figures, calculated by the Canadian Centre for Policy Alternatives, provide a graphic illustration of why a bold new ruling by the U.S. Securities and Exchange Commission is so ground-breaking. It would force publicly traded American companies to disclose how the pay of their chief executives compares with that of typical employees: an idea the corporate culture calls “class warfare.”
The ruling would also spill over to Canadian companies listed on the American stock exchange, now immune to such telling comparisons. And that could put pressure on purely Canadian companies to follow suit.
Up to now, top CEOs’ salaries are routinely compared with each other – which instead of naming and shaming companies that award the stratospheric pay, has created a super-elite club of managers who can trumpet the revelations as proof of their market worth.
The SEC ruling is not perfect. It only begins in 2017, which could give anti-transparency lobbyists time to campaign against it. And it allows companies to publish results every three years rather than annually. But its overall effects can only be salutary in an environment where inequality has become an economic illness.
That’s because work and wealth are now on increasingly different paths. Much of America’s inequality, says U.S. Nobel laureate Joseph Stiglitz, is “the result of market distortions, with incentives directed not at creating new wealth but at taking it from others.” French star economist Thomas Piketty adds that the passionate embrace of “meritocracy” to justify massive pay gaps has been sustained by claims that the alternative is a plutocracy of unearned, inherited wealth.
That is no longer true, if it ever was. With the slashing or repealing of inheritance taxes in the wealthy OECD countries, vast salaries are now converted to legacies for heirs who can use them for powerful political and economic leverage.
Nor can recipients of multi-million-dollar salaries claim that their heavy responsibilities and stellar performances warrant compensation hundreds of times above that of low or average wage-earners, some of whom must toil at two or three often precarious jobs to survive. Meanwhile the old company-building benchmarks that once measured the worth of CEOs are giving way to the virtual reality of the firms’ performance on the stock market. And the high earners are allowed tax subsidies on stock options.
The way out of this corrosive two-tiered system is complex and calls for sweeping tax and regulative reform. But a change in culture, like the SEC ruling, is a start. Toronto-founded Wagemark has argued for a new standard for fair and competitive compensation to reduce growing income inequality. It calls for companies to pay CEOs no more than eight times the amount of its lowest-paid workers.
But without mandatory wage comparisons progress will be slow. It is not encouraging that Ontario Premier Kathleen Wynn has broken her pledge to cap compensation of public sector executives by hiring a $1.55 million-a-year CEO for Ontario Power Generation.
The pathway to change is also unclear, involving the Ontario Securities Commission and the Canadian Securities Administrators umbrella group. And it would undoubtedly be strewn with hurdles. But the workers, most of them struggling under the strain of daily survival, are losing patience. They are fed up with a system that offers them no substantial rewards for their toil, but only platitudes about hard work and success.
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Tags: economy, ideology, standard of living, tax
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