CEOs Breeze Through Recession With Top Salaries

January 7, 2011 Updated: October 1, 2015

A recent study found that Canada's 100 best-paid CEOs earned 155 times the income of the average Canadian worker in 2009. (
A recent study found that Canada's 100 best-paid CEOs earned 155 times the income of the average Canadian worker in 2009. (
Canada’s 100 best-paid CEOs earned 155 times the income of the average Canadian worker in 2009, according to a new study by the Canadian Centre for Policy Alternatives (CCPA).

The report, titled “Recession-proof,” focused on the earnings of the 100 best-paid public company CEOs in 2009, the darkest year of the economic downturn in Canada.

It found that the average pay for the top CEOs was $6,643,895 in 2009, compared to $42,988 for the average Canadian income earner and $19,877 for minimum-wage workers.

“At the rate they earned in 2009, by about 2:30 [p.m.] on January 3, the average of the 100 best-paid public company CEOs in Canada already pocketed what it would take a Canadian working full-time all year to earn,” wrote Hugh Mackenzie, CCPA Research Associate and author of the report.

In 1995, Canada’s 50 highest-paid CEOs received an average pay of $2.66 million, 85 times that of the average worker, and in 2009 their pay soared to 219 times that of the average worker, according to the report.

Based on Mr. Mackenzie’s calculations, Canada’s highest-paid CEO in 2009 was Aaron Regent of Barrick Gold Corp., who earned a total of $24,217,040, consisting of the value of his base salary, bonus, shares, options, pension, and “other” benefits.

Second was Hunter Harrison of the Canadian National Railway Co. ($17,343,160), followed by Gerald Schwartz of Onex Corp. ($16,689,758), and Edmund Clark of TD Bank ($15,188,391).

Massive Stock Options Payouts

The earnings gap between the CEOs and everyone else widens dramatically when the CEO’s stock options are taken into consideration.

“When the best-paid 100 CEOs finally decide to exercise their stock options, Canadians will subsidize that bonus in lost taxes,” writes Mr. Mackenzie.

“Stock options are taxed as if they were capital gains, rather than as ordinary income. As a result, nearly one-third of CEOs’ 2009 reported income—and the entire amount of their capital gains windfall—is taxed at half the rate paid on wage and salary income.”

Those CEOs’ stock options were worth $1.3 billion as reported to shareholders in 2009. When they are cashed in, the tax subsidy will translate to an estimated $360 million in foregone taxes, “an average of $3.6 million per top-100 CEO,” Mr. Mackenzie noted.

He added that Canadian corporations, in response to public outrage over massive options payouts, have changed the way they report options income.

Instead of reporting the actual income realized when their executives cashed in their options, many now simply provide a conservative estimate of what the options might have been worth when they were granted.

The major banks and some other corporations still disclose the realized value, but most companies have dropped this disclosure completely.

As an example, in 2008 TD Bank reported in its proxy circular that the options granted to its CEO was worth over $3.7 million. However, the value of the options as of Nov. 30, 2010, was nearly four times that amount—over $13.5 million.

Curbing Excessive Compensation

The debate continues around the world as to the best practice in dealing with CEO salaries and bonuses, especially in the U.S., where CEOs “had overseen the wiping out of billions of dollars in shareholder value,” wrote Mr. Mackenzie.

A recent CCPA study by Senior Economist Armine Yalnizyan found that one-third of all income gains in Canada between 1987 and 2007 went to the richest 1 percent of Canadians. Specifically, for CEOs, about two-thirds of their reported income is in the form of shares or stock options, both tied to stock market values.

Mr. Mackenzie noted that Roger Martin, dean of the University of Toronto’s Rotman School of Management, argued that CEOs should be paid based on how their companies perform in the “real market,” such as in terms of business strategy, product development, sales, and profits, rather than on the “expectations market,” driven by the bets placed by investors which influence share values.

To address the impact of the CEOs’ excessive pay on income inequality, the CCPA report suggested that government “tax a portion of that excessive pay package back,” and even without raising taxes, to change the tax rules so that proceeds from cashing in stock options will be taxed as ordinary income rather than as capital gains at half the normal rate.