Social Policy in Ontario

Time for Ottawa to make sure top CEOs pay their fair share

Posted on January 4, 2017 in Governance Debates

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TheStar.com – Opinion/Editorials
Jan. 3, 2017.   Editorial

Ah, back to work after the holidays. Another day, another dollar. Or, if you’re lucky enough to be one of Canada’s best-paid executives, another day, another $26,000 — on average.

That’s how much the daily compensation for the country’s top 100 chief executives worked out to in 2015, according to a new study by the Canadian Centre for Policy Alternatives. The think-tank’s annual survey of CEO pay found that the best-paid 100 took home an average of just over $9.5 million apiece.

It’s a record amount, and it confirms the trend of ever-increasing CEO pay. Just to rub things in, author Hugh Mackenzie calculates the top executives received 193 times the average worker’s salary in 2015. They earned the annual average Canadian wage by lunchtime on Tuesday.

We’ve become so accustomed to hearing figures like this that it’s tempting to conclude it’s simply the way of the world. The rich just keep getting richer.

In fact, it doesn’t have to be that way and there are good reasons to question it. In particular, there are ways to make sure that if top executives are going to be so extravagantly rewarded by their companies they at least face a bigger tax bill and contribute more toward the common good.

For one thing, the CCPA survey shows that most of the compensation for the top 100 CEOs was in the form of stock options and grants of stock, which are taxed at just half the rate of regular salary or bonuses.

This is an enormous tax break that costs the federal treasury an estimated $1 billion a year. It was introduced back in 1984, ostensibly as a way to help startup companies that couldn’t afford to pay big salaries up-front to attract top talent.

But, as we have argued before, it has been effectively co-opted by top executives at well-established companies as a way of simply paying less tax. An earlier study by the CCPA found that in 2013 just 75 of the country’s best-paid CEOs collectively benefited from this tax break to the tune of $495 million.

It’s as if Ottawa spent half a billion dollars just to make 75 already-wealthy individuals, charter members of the so-called 1 per cent, even more comfortable. The latest figures on CEO compensation show this wasteful practice is alive and well and draining away money that could be put to use for any number of better purposes.

The Trudeau Liberals campaigned on ending, or at least reducing, this highly regressive tax break. They talked about moving toward tax fairness and making sure everyone pays their fair share.

But as Finance Minister Bill Morneau prepares his second budget, it has become clear he has backed off on that promise. He has apparently bought into the argument that curbing the tax break on stock options and grants would damage small startups and hamper innovation — the Holy Grail of Liberal economic policy.

Morneau would do better to look again and find a way to help startups get off the ground without handing hundreds of millions of dollars to well-heeled executives at big established companies that don’t need any such subsidy.

Bloated compensation for elite CEOs is hardly the most pressing economic problem Canada faces. And defenders of the status quo will point out that taxing away every penny they make wouldn’t make a huge difference in a two-trillion-dollar economy.

But runaway CEO pay highlights the broader and more serious issue of growing inequity in our economy, and all the social ills that come with it.

The least we should expect of our governments is that they will lean against this trend, not fuel it. The Trudeau Liberals should do that by curbing an expensive and indefensible tax break for people who don’t need it.

< https://www.thestar.com/opinion/editorials/2017/01/03/time-for-ottawa-to-make-sure-top-ceos-pay-their-fair-share-editorial.html >

Tags: budget, economy, featured, ideology, tax

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