By Tuesday afternoon, Canada's 100 highest-paid CEOs will have pocketed an average of $44,366 — what it takes the average Canadian a year to make — a new report says.
The gap between what the average Canadian makes and what the country's top business executives rake in is growing every year, according to the report from the Canadian Centre for Policy Alternatives, a left-leaning think-tank.
By the end of 2010, the 100 top-earning CEOs of companies listed in the S&P/TSX index made, on average, $8.38 million, up 27% from the year before.
That's 189 times more than the country's average wage, the report says.
While he isn’t surprised this group is earning more than it did in the past, Wei Wang is surprised at how quickly their compensation is rising.
“The fast increase — from 5-and-a-half to three hours (to earn the average Canadian’s salary) — over one year surprises me because we’re judging this by their stock performance,” Wang, a professor at Queen's School of Business, said.
It’s important to note that salary is but one component of a chief executive’s compensation package, Wang said, and that, in fact, salaries typically comprise a quarter of the total remuneration. Making up half to three quarters of that annual paycheque are stock incentives, which are tied to the company’s stock performance.
It’s not that the salaries of Canada’s top chief executives are going up drastically, Wang said, it’s the stock options they are issued that make the biggest difference.
Offering top CEOs such lucrative packages is what it takes to attract the top talent, Wang said. Including stock options is an attractive way to do so, he said, and performance-based incentives have been used as a lure since the 1990s, he said.In Canada, stock options are attractive for CEOs since they are taxed as if they were capital gains rather than income, which means, the report states, “that every dollar of income realized from exercising a stock option is taxed as if it is 50 cents.”
Paying seemingly exorbitant salaries is a necessary part of doing business, Wang said, since the market for top-notch chief executives is slim.“
To compete in the international market, a lot of corporations that need a higher, good quality CEO (are) competing with the U.S. companies in obtaining good, quality CEOs with skills.
"If you don’t offer a comparable wage, the CEO won’t come,” Wang said.“The disadvantage is they’re just ‘horse racing’ how much they pay to CEOs.”
-- with files from Peter Hendra