We need to rein in excessive CEO pay through taxation

David MacdonaldAs Canadians struggle with a cost-of-living crisis, Canada’s top CEOs are making more than ever before. The 100 highest-paid CEOs broke every compensation record on the books in 2022, receiving, on average, a whopping $14.9 million.

Those CEOs made 246 times more than the average worker’s wage in Canada, besting their previous high of 243 times the average worker’s earnings in 2021.

Broken down another way, those top CEOs get $7,162 per hour: This means it takes them just over eight hours to pocket the $60,000 an average worker toils all year to earn. In other words, at 9:27 a.m. on Tuesday, Jan 2nd, Canada’s top CEOs had already raked in what the average worker will make all year.

To make matters worse for workers, inflation is pushing up costs, and salaries are not keeping up. In 2022, the average worker in Canada got an average pay raise of $1,800, or three percent. But prices went up by 6.8 percent in 2022, meaning workers took a real pay cut of almost four percent compared to 2021.

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The top 100 CEOs, on the other hand, saw an average pay raise of $623,000 in 2022. The CEO raise was also less than inflation, but CEOs do not struggle to cover basic costs as many workers do.

In fact, the entire economic system is designed to privilege high-earning CEOs. They even benefited from inflation. The corporate line was that they couldn’t help but increase their prices because their costs were going up. Turns out their profits weren’t squeezed in 2021 and 2022; they soared. CEOs are mostly paid in bonuses, which are linked to profits. Inflation drives profits, profits drive bonuses and CEOs laugh all the way to the bank.

Overall, in Canada, we’re overvaluing CEO pay and undervaluing worker pay – and that’s got to change!

Governments must address the rampant income inequality between the rich and the rest of us, and there are four taxation measures that can help by both disincentivizing extreme CEO compensation and redistributing CEOs’ extreme income to Canadians on the lower end of the income spectrum.

First, we should create new top income tax brackets that only apply to income levels where CEOs are. Current top marginal income tax brackets in Canada are just over 50 percent in the large provinces, much less than the 70 to 80 percent tax range that was standard practice in the post-war years. We should return to that.

Second, we should remove the corporate tax deductibility of pay packages over a million dollars. In that way, if a company wants to pay its CEO more than that, it wouldn’t receive a tax break on it. Instead, companies would have to pay corporate income taxes on it.

Third, we should introduce a wealth tax, starting with those with over $10 million. Most Canadians would consider receiving $14.9 million akin to winning the lottery, not a single year’s pay. However, the CEOs on the top 100 list are getting that amount year after year – and that builds up over time into wealth inequality. A wealth tax would help right this imbalance.

Finally, we should increase the capital gains inclusion rate. Capital gains tax breaks are an important way for CEOs to avoid paying their fair share. Income made when a stock is sold at a profit is called a capital gain, and only half of capital gains income counts as income for tax purposes. But a buck is a buck; whether you make it in the stock market or by working a minimum-wage job, both should count evenly as income.

CEO pay continues to skyrocket without restraints. We don’t have to like it, but that doesn’t mean we can’t tax it.

David Macdonald is a senior economist at the Canadian Centre for Policy Alternatives.

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