Swelling CEO salaries highlight income inequality

Posted on January 22, 2024 in Equality Debates

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TheStar.com – Opinion/Editorial
January 22, 2024.   By Star Editorial Board

The average worker received an average wage increase of three per cent in 2022 while prices rose by more than twice that amount.

Here’s some advice from an assistant professor of economics at George Mason University in Fairfax, Virginia: “Let’s stop faking up outrage by engaging in performative statistical construction.”

Vincent Geloso, writing recently in the American Institute for Economic Research, has clearly had it with what he calls the “cheap populism of bashing CEO pay.” Specifically, Geloso is aiming fire at the Canadian Centre for Policy Alternatives and its latest annual report on CEO pay. This year’s title: Canada’s New Gilded Age.

You know the one. Each January, the CCPA reminds us that before we’ve even cleared away the party detritus from New Year’s celebrations, the country’s top CEOs have already made the annual income of the average Canadian worker. As the clock struck 9:27 a.m. on January 2 this year, CEO pay surpassed $60,000. Depression sets in.

Geloso says we’re misinformed. If you look at the total compensation of the average worker — adding retirement benefits, paid vacation days, health insurance — the gap is not so great. Instead of the richest CEOs making 246 times more than the average worker, he cites a multiple closer to 220.

Feel better? Neither do we.

What these reports fail to point out, he writes, is that CEOs are often fired from their positions. Ergo they need to be financially insured against job loss — by implication even if they’re found to be lousy at it. As an example he reaches way back, informing us that 42 of the top 100 Canadian CEOs in 2007 were “out” by 2008, by which the reader infers “fired.”

We can imagine the soft financial landing awaiting those executives who were fired compared with the financial vulnerability of the let-go worker who has given up on the idea of building any sort of nest egg, especially in inflationary times. According to a fall report from the Financial Resilience Institute, 76 per cent of Canadians are classified as not financially resilient. Eighteen per cent are extremely vulnerable to financial shocks. The average worker received an average wage increase of three per cent in 2022 while prices rose by more than twice that amount.

Geloso has ridden this horse before, including his report for the Fraser Institute in 2020, using the same data, asserting that executive pay has increased because the demand for the advanced skill set of the sharp CEO has increased.

We are vexed. Comparing 2007 to 2008 is not, well, comparable. We recall new securities regulations in ’08 that introduced granular compensation disclosure to provide better insight into executive pay. Why? Here’s one thought: opaque financial engineering tying the rewards of, say, stock options to short-term performance which in turn incentivized corporate cost cutting to boost the company’s stock price.

We need to be able to assess when executive compensation is fair and when it is not. The one-time personal award of $13 million to the top 10 Canadian CEO due to the “associated costs” of the company’s recent move from Toronto to the U.K. is a good example of when it is not.

RELATED STORIES: Canadian CEO’s ‘Gilded Age.’ Top 100 executives saw their pay packages skyrocket in 2022

We need to keep the topic of executive compensation on the front burner. We need to keep the issue of worker pay on the front burner.

After all, it has been more than 20 years since the American economist Paul Krugman sighed that we have entered a second Gilded Age. The widening gulf in income inequality, the concentration of wealth in the hands of the top one per cent, the CEO to average worker pay gap exploding from 39 times to more than 1,000 times across three decades to the turn of this century.

In that context the report from the Canadian Centre for Policy Alternatives can sound a little ho-hum, nothing new. That’s exactly the problem. The financial disconnect between CEOs and the employees who work for them underscores broader issues of income inequality and affordability. We need quality research and robust debate on how to address income inequality and stagnating wages for those not privileged to work in the c-suites. We need to understand that it’s not good enough to pull the covers over our heads every January and go back to sleep.


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