Regulate and Tax Excessive CEO Pay to Fight Inequality

January 3rd, 2017

As New Democratic MP Erin Weir correctly predicted in Parliament on November 25 (Hansard): “By around noon on January 3, Canada’s top 100 CEOs will, on average, have made as much as the average full-time employee will earn over the entire year.”

The Canadian Centre for Policy Alternatives reports that 11:47am today is the precise time. Addressing this worsening inequality is a matter of fairness and efficiency.

“If we consider 100 CEOs each making an average of $9 million, that’s almost $1 billion not being used to hire other employees, invested in machinery and equipment, or devoted to innovative research and development,” said Weir. “Our economy would be stronger – and even corporate Canada would be better off – with government regulation to limit executive compensation.”

Specifically, the NDP proposes to amend Bill C-25, An Act to amend the Canada Business Corporations Act, the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act, and the Competition Act, to include mandatory and binding “say on pay” provisions. Currently, Canadian corporate boards are free to ignore shareholder votes on executive compensation.

“The federal government can and should also address out-of-control executive compensation through the tax system,” Weir noted in continuing his speech on December 9 (Hansard). “The Liberals failed to close the loophole that exempts half of stock options from personal income tax, which mostly benefits highly-paid CEOs and corporate executives.”

Another approach is to limit the amount of executive compensation that can be deducted in calculating corporate income tax. Such limits have been ineffective in the US, where they exempt “performance-based compensation” such as stock options. 

Weir suggested a Canadian limit covering all forms of executive compensation. These progressive tax reforms would either prompt a more equitable distribution of pay, or at least collect revenues to help fund healthcare, education and other public services needed by working Canadians.