Take action to ease pay gap of CEOs, staff
The start of every new year brings a familiar update on the state of pay inequality in Canada.
Each year, the Canadian Centre for Policy Alternatives compares the income of CEOs to the average wages of Canadians; each year, soaring executive payouts result in an everlarger gap between the highest-paid few and everybody else. And 2018 is no exception.
A new report by David MacDonald has revealed that CEOs are now raking in over 200 times the average income of Canadians. And while workers saw a modest pay increase of only 0.5 per cent since the previous year, CEOs saw their income jump by eight per cent to top the $10-million threshold.
Unfortunately, the fact that matters have been getting worse over more than a decade of exposure of outsized CEO salaries signals that transparency alone isn’t enough to bring about change.
To the contrary, disclosure of executive salaries may only serve to boost pay levels at the top. Increased publicity as to the amounts being paid to other corporate executives offers lesser-paid CEOs a benchmark for comparison
Even the highest CEO pay totals are tiny in comparison to the wealth added every year by Canada’s richest families.
which they’ve been able to use to ratchet their pay upward. And while one might expect that effect to operate in both directions, businesses have chosen not to push back by seeking lowerpaid comparators.
So if shaming the shameless hasn’t worked, what might be more effective in narrowing the gap between CEOs and the rest of the workforce?
One part of the solution necessarily involves boosting the average pay which serves as the point of comparison for executive income. That may include direct mandates to increase pay, through increased minimum wages as well as living wage targets. And it may also include increased compensation fairness through an improved balance of bargaining power.
Most obviously, we could encourage the use of collective bargaining, which pairs full information about negotiated wages with the amalgamation of the collective power of workers. But a partial additional fix might include increased salary disclosure at all levels of an employer’s organization — ensuring the ratchet effect is available for all workers, and that asymmetrical access to information doesn’t serve to drive wages down.
As for the top end of the spectrum, there are few obvious options to address executive pay directly. While the concept of a maximum wage may hold some appeal, an attempt to cap one type of compensation is likely to give rise to a cottage industry in exploiting loopholes.
Moreover, executive pay is itself only a small part of the wider problem of inequality. Even the highest CEO pay totals are tiny in comparison to the wealth added every year by Canada’s richest families. And so while CEO salaries may make for a useful point of comparison, they shouldn’t be seen as the only imbalance which requires correction.
The most viable option is then a more progressive tax system, which in addition to generating more revenue could change the incentives which currently lead to outsized executive pay. That may include properly taxing stock options rather than giving them preferential treatment, and establishing a top income-tax bracket which recognizes the diminished social utility of income in the hands of the people who need it least.
Both elements of the pay gap could also be alleviated through improved corporate governance, including worker representation on corporate boards to ensure decisions aren’t only made by and for the corporate governance class.
Those types of systemic changes will need time to be developed and implemented. But they offer some hope that one of these years, we’ll finally be able to say that workers are catching up with CEOs.