Canada’s new gilded age

Executive summary

This report examines CEO compensation in Canada, looking at the pay packages of Canada’s highest-paid 100 CEOs in 2022, the most recent year of data. It was another record-breaking year, with CEOs exemplifying the new gilded era that Canada’s rich seem to be in.

Canada’s top 100 CEOs were paid a whopping $14.9 million, on average, in 2022. This is an all-time high and bested the previous record of $14.3 million, which was set last year. This is more than double what CEOs were paid in 2008—$7.4 million—when the CCPA started publishing this data set.

These richest 100 CEOs in 2022 made 246 times more than the average worker—another all-time high for CEOs. This was a small increase from the previous record of 243 times that was set last year.

In 2022, the average worker in Canada got an average raise of $1,800, or three per cent, from $58,800 in 2021 to $60,600 in 2022. However, prices went up a whopping 6.8 per cent in 2022 (although much higher for things like food and rent), meaning that workers took a real pay cut of almost four per cent since their money could buy much less than it did in 2021.

The top 100 CEOs, on the other hand, saw an average raise of $623,000, or 4.4 per cent, going from $14.3 million in 2021 to $14.9 million in 2022. CEOs saw a higher percentage raise than the average worker, although it, too, was smaller than inflation. The headline inflation figure, however, is much less relevant for CEOs since they are unlikely to spend their entire pay package and they certainly don’t buy the same goods and services as average Canadians.

The average CEO collects $7,162 an hour. It takes just over eight hours in the new year for the top 100 CEOs to clock in an average of $60,600—what the average worker in Canada makes in an entire year. By 9:27 a.m. on January 2, 2024, Canada’s top CEOs would have already made $60,600 while the average Canadian worker will toil all year long to earn that amount of pay.

The richest CEOs in 2022 was paid 246 times more than the average worker. This was a small change from the previous record of 243 times that was set last year.

Gender inequality remains firmly in place among CEOs: with Marks and Scotts counting four members each on the male-dominated list—there are only four women on this year’s list. This year, the average Mark made $18.5 million and the average woman made $11.7 million. In other words, the average top female CEO makes 63 cents for every dollar a CEO named Mark makes.

Being on the top of the 100 highest paid CEOs isn’t generally a road to riches for the company’s shares, although it may be for the CEO. The report examines the subsequent stock performance of a company if its CEO topped the highest-paid list, going back to 2015. Six months after a top CEO’s pay package is completed, the best scenario is that a company’s stock had remained where it was when that extreme pay package began. A full year after the top CEO’s pay package was complete, no company had better than a 35 per cent decline in their stock price. Two years after the extreme pay package wrapped up, the ‘best’ performance was a 45 per cent decline in the company’s stock price.

The report concludes with a set of taxation recommendations to disincentivize extreme CEO compensation and to redistribute CEOs’ extreme income to Canadians on the lower end of the income spectrum.

CEO smashes records again

While the wave of inflation has been crashing down hard on regular Canadians, Canada’s 100 highest-paid CEOs have been riding it to another record-smashing year. Inflation presented a-once-in-a-lifetime chance for corporate Canada to jack up prices and pad their profit margins. As a result of these record-high margins, this report documents new all-time highs across the various metrics that we employ to track the compensation packages of Canada’s 100 highest-paid CEOs.

In 2022, the most recent year of data, Canada’s top 100 CEOs were paid a whopping $14.9 million, on average. This is an all-time high and bested the previous record of $14.3 million, which was set last year. This is more than double what CEOs got in 2008—$7.4 million—when the CCPA started publishing this data set.

While the pandemic slowed top CEO pay gains, it didn’t reverse them. In fact, 2020 CEO pay was slightly higher than in 2019, as CEOs took government bailouts or changed their “performance-based pay” to exclude the massive performance hits taken during the COVID-19 economic shutdown. Once the economy re-opened and inflation was in full swing, CEO pay in 2021 and 2022 made up for lost time, rapidly smashing previous records. While the changes protecting executives from the downside during the pandemic shutdowns were justified due to extraordinary circumstances, there was no similar changes capping bonuses due to the extraordinary circumstances of inflation. It’s the classic “heads I win, tails you lose” approach to bonuses.

However, it wasn’t just average CEO pay that hit a new record this year—even the pay of the last CEO to make the top 100 list reached an all-time high. This year’s 100th CEO’s pay was $6.7 million, the highest ever recorded, slightly above the previous record set last year. Most Canadians are familiar with an hourly minimum wage, usually around $15 an hour, depending on the province. The equivalent minimum CEO wage for the top 100 is $3,220 an hour.

The average and minimum threshold pay aren’t inflation adjusted and it’s worth comparing the pay of CEOs to that of the average worker. Here we find another new all-time record: the richest CEOs in 2022 was paid 246 times more than the average worker. This was a small change from the previous record of 243 times that was set last year.

In 2022, the average worker in Canada got an average raise of $1,800, or three per cent, more than in 2021. For the average worker, pay rose from $58,800 in 2021 to $60,600 in 2022. However, prices went up a whopping 6.8 per cent¹ in 2022 (although much higher for things like food and rent), meaning that workers took a real pay cut of almost four per cent since their money could buy much less than it did in 2021.

The top 100 CEOs, on the other hand, saw an average raise of $623,000, or 4.4 per cent, going from $14.3 million in 2021 to $14.9 million in 2022. CEOs saw a higher percentage raise than the average worker, although it, too, was smaller than inflation. The headline inflation figure, however, is much less relevant for CEOs since they are unlikely to spend their entire pay package and they certainly don’t buy the same goods and services as average Canadians.

As always, we calculate how long it takes for the average top 100 CEOs in Canada to collect what the average worker makes all year. Here we assume both workers and CEOs work 52 weeks a year and five days a week while getting paid vacations.

The average CEO collects $7,162 an hour. It takes just over eight hours in the new year for the top 100 CEOs to clock in an average of $60,600—what the average worker in Canada makes in an entire year. By 9:27 a.m. on January 2, 2024, Canada’s top CEOs would have already made $60,600 while the average Canadian worker will toil all year long to earn that amount of pay.

The circle of life: Inflation → profits → CEO bonuses

It’s important to understand what has been driving record-high CEO pay for the past two years. The main driver is from so called performance pay, as we’ll see below. Broadly, there are various types of bonuses paid to CEOs when companies perform well in areas like revenue, profit and stock prices. These bonuses are driving CEO pay. The salary part of their pay remains relatively constant, at around $1 million a year. In 2022, it stood at $1.2 million. As bonuses keep rising, the million-dollar salary becomes increasingly irrelevant.

It’s inflation that’s been ultimately driving these bonuses, due to historic profits in the corporate sector, which is interesting, given CEO pay is frequently claimed to be based on merit.

Canadians understand that inflation hit multi-decade highs in 2021 and 2022, with annual inflation peaking at 8.1 per cent in June 2022. What’s less understood is how well corporate Canada did over this same period, hitting record levels of sales, profits and pre-tax profit margins. Consumers’ pent-up demand once the economic shutdowns were lifted in 2021 provided a historic opportunity for companies to rapidly raise prices both in 2021 and 2022. This shows up in the inflation statistics and in the corporate profit statistics. Corporations submitted that their costs were going up and price increases were necessary to keep their businesses going even though maintaining margins in such an environment is a sign of pricing power rather than having to absorb those higher costs on the profit side.

The statistics tell a much different story: that corporate Canada was, broadly speaking, using inflation as a cover to drive profits and margins way outside of historical norms. CEOs heading those companies were, in turn, rewarded for those historic profits with historic pay packages based on those record profits.

The pre-tax profit margins are outlined in Figure 3 and show average corporate Canada margins well above historical norms. They rocketed up in 2021 and remained high in 2022. Throughout 2022, the period examined in this report, profit margins declined somewhat from all-time highs. However, they remained far above any pre-pandemic highs. What that means is that more revenue was converted into profit than in any quarter in at least the last decade.

Generally speaking, thresholds for CEO bonuses aren’t adjusted for inflation. CEOs aren’t required to hit higher inflation-adjusted revenue targets, so a company could have sold the same 50 million units in two different years, but prices would be 15 per cent higher in the second year. As such, the revenue for those 50 million units would go way up even if the actual sale of units were the same year to year. Although companies adjusted their bonus metrics for the extraordinary bad circumstances of the early pandemic, they didn’t adjust them for the extraordinary good circumstances of high inflation.

For the purposes of CEO bonuses, nominal revenue and nominal profit are more important than inflation-adjusted measures like the margins presented in Figure 3. From the perspective of straight pre-tax profit in Figure 4, 2022 was better than 2021, with corporate profits hitting $685 billion in 2022 compared to $631 billion in 2021. For CEOs, whose pay is linked to variants of pre-tax profit, this helps explain why 2022 was a banner year, even compared to 2021. The margins may have been lower in 2022, but that didn’t matter because inflation made up for that, boosting the dollar value of profits to an all-time high in 2022.

These results were particularly true for broad categories of companies, with non-financial companies registering their best quarter ever in the second quarter of 2022 and financial companies registering their best quarter ever in the fourth quarter of 2022.

Figures 3 and 4 also highlight the substantial drop in profits and margins in 2020 during COVID-19 economic shutdowns. One would think that if inflation and sky-high profits can supercharge CEO pay in 2021 and 2022, they then should have also deflated them in 2020. But as we saw earlier, top CEO pay in 2020 was higher than in 2019, when profits and margins were at more “normal” levels. While pay packages grow in good times (like 2021 and 2022), they don’t shrink in bad times, like in 2020. In our 2020 richest CEO list, 49 of the 100 best-paid CEOs worked for companies that got government support through the Canada Emergency Wage Subsidy (CEWS) or modified their bonus formulas to avoid a drop in pay (or did both). Without these changes, CEO pay would have been much worse in 2020 but CEOs were protected from the downside.

The whole premise of the bonus part of CEO pay, which is generally driving extreme pay, is that these bonuses are justified as merit-based. CEOs can only get paid these extreme amounts if they “deserve it” due to their extreme performance. Hypothetically, the argument goes, they could make no bonus if company performance wasn’t up to snuff. In the real world, when revenues plummet, the merit/performance formulas are changed after the fact to excuse executives from responsibility. In other words, they can’t be held responsible when things go wrong, but are incredibly responsible when things go right.

The truth is that much of a company’s performance in these broad measures has more to do with how the stock market did that year or whether a company was in the right sector when some outside factors hit it. Instead of rewarding merit with performance pay, companies are simply rewarding luck. But more than that, they are only rewarding good luck because when companies underperform, executive bonuses are maintained, regardless of the circumstances. These bonuses have nothing to do with objective measures of company performance, let alone measures that pertain to the well-being of workers, consumers, communities or the environment.

Does it pay off to have the top-paid CEO?

The average top 100 CEOs’ pay in 2022 was propped up by the single highest-paid CEO, although the highest-paid CEO earned less than the highest paid CEO did in 2015. If you remove the highest-paid CEO, the average top 100 CEOs’ pay would be $13.5 million, which would have been the second highest average on record.

Often companies justify paying their CEOs extreme amounts in order to squeeze extreme performance out of them to boost a company’s fortunes.

Figure 5 charts the subsequent stock performance of the company topping our richest 100 CEO list that year. For example, if a CEO was the highest paid in 2015, their stock performance in Figure 5 starts on January 2015 and the one-year mark is the date at which that top pay package would have been completed.

What becomes clear is that making it to the top of our 100 highest-paid CEO list is not necessarily a ticket to riches for the company itself, although it may be for the CEO. Since 2015, corporations whose CEO has soared to the number one spot on our highest-paid 100 CEO list have registered much lower stock prices afterwards (for companies with data).

Six months after a top CEO’s pay package is completed (at the 1.5-year mark on the graph), the best scenario is that a company’s stock had remained where it was when that extreme pay package began. A full year after the top CEO’s pay package was complete (year two on the graph), no company had better than a 35 per cent decline in their stock price, but in the worst case, the stock declined 88 per cent. Two years after the extreme pay package wrapped up (year three on the graph), the ‘best’ performance was a 45 per cent decline in the company’s stock price.

Given the subsequent decline in share prices following those extreme CEO pay packages, it’s almost certain that those CEOs didn’t see the full value of their packages as originally recorded. But given how extreme these packages were, even if only half was eventually paid, they would often still be at the very top that year, if not still the highest. And this assumes that CEOs are held to the letter of their performance agreements. As we saw during the pandemic, there are plenty of companies willing to change those performance agreements to insulate executives from bad news and ensure they get their bonuses anyway.

Changing CEO pay packages

As alluded to above, CEOs are paid much differently than regular workers, with various streams of different types of pay. Workers generally make almost all of their income from a salary or wages. They might receive a bonus, but it would be small compared to their salary and wages. They might also have a pension or RRSP matching program but, generally, no other forms of compensation.

For CEOs, bonuses or “performance pay” make up most of their pay package. Within the bonuses category, there are three forms: cash bonuses, stock options (sweetheart deal to buy company shares in the future) and direct awards in company shares.

Over the course of the past decade, direct-share awards have become the predominant form of compensation, comprising 42 per cent of the top CEO pay package in 2022. Share awards are when CEOs are paid in shares, not in cash. The other forms of bonuses, namely cash and stock options, have tapered off slightly. Over this period, the base salary and “other” category have become less important.

One of the reasons why stock options may be on the downswing is that, since mid-2021, the half-off coupon on taxes for stock options had been limited to only the first $200,000 in options. This may mean that simply awarding shares is an easier approach than creating stock options. It’s something worth watching in future years.

To get a better picture of performance pay or bonuses, Figure 7 amalgamates the three forms: stock options, stock awards and cash bonuses. When we talk about extreme CEO pay, it’s the bonuses that are driving it, not salaries or other perks like country club memberships. Performance-based pay used to make up 69 per cent of aggregate pay when we started collecting this data in 2008 and it’s now 84 per cent. What’s evident from Figure 7 is that bonus pay keeps rising without any substantial declines. If this pay was truly performance-based, you’d expect there to be bad years where companies don’t make money and CEOs bear the brunt of that in lost bonuses. Corporate profits performed poorly in 2010, 2015 and 2020, yet we didn’t see this reflected in the “performance based pay”(see figures 3 and 4).

What’s evident in watching executive pay packages during the 2020 decline in corporate profits is that the system works in favour of CEO pay. This was evident when performance pay in 2020 rose above where it stood in 2019, despite corporate performance plummeting due to pandemic measures. Corporate Canada used to pay “only” $5 million, on average, for performance but now it’s paying $12.5 million, with no apparent periods in which poor performance results in lower performance pay.

Marks and Scotts tie all women in richest CEO count

As with last year, Marks remained in 2022’s 100 highest-paid CEO list and Scotts were on the ascension, with four men each. There were only four women on the top 100 CEO list in 2022. This is nothing new and continues to exemplify extreme gender inequality at the top of corporate Canada.

This year the average Mark made $18.5 million and the average woman made $11.7 million. In other words, the average top female CEO makes 63 cents for every dollar that a CEO named Mark makes.

Conclusion and recommendations

Canadians might not like extreme CEO pay packages, but it doesn’t mean governments can’t tax them and redistribute that income to Canadians at the bottom of the income spectrum. Canada’s top marginal tax rates were once much higher than they are today. It’s not coincidental that during periods when income taxes were much higher on the wealthy, the gap between the rich and the rest of us in Canada was much lower. From a CEO’s standpoint, there might be little purpose in receiving extreme amounts only to have them turn around and pay it all back in taxes. Here are four policies that would target these extreme pay packages and the special types of income they use.

1. Create new top income tax brackets

There is little opportunity for CEOs to skirt income tax rules, outside of using the legal tax loopholes already explicitly present in the income tax system. Therefore, if those loopholes were curtailed, or completely closed, CEOs would be forced to pay taxes according to the basic progressive income tax table. Current top marginal income tax brackets in Canada are just over 50 per cent in the large provinces, which is relatively low historically. In the post-war years, top marginal income tax brackets stood within the 70 per cent range—much higher than they are today.² Despite these higher rates, there were still CEOs, Canada was still economically competitive and, if anything, enjoyed stronger economic growth. It’s time to consider moving back towards these higher brackets.

2. Remove corporate deductibility of pay packages over a million dollars

For a profitable corporation, any money paid to its CEO is money it doesn’t have to pay corporate income tax. Compensation of a CEO, as for any employee, reduces the profit a company declares and, therefore, decreases the amount it owes in income taxes. However, a limit could be put on this deductibility of an employee’s compensation if it exceeds a million dollars, or roughly the salary for Canada’s richest CEOs. If a company wanted to pay its CEO more than that, it wouldn’t receive a tax break on it. Instead, they would have to pay corporate income taxes on that amount.

3. Introduce a wealth tax

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 earning that amount year after year—and that builds up over time into wealth inequality that is much more extreme than the 246 times more that CEOs make compared to the average worker. The richest 87 families in Canada hold more wealth than the bottom 12 million Canadians.³ Many of the richest Canadians are also on the top-paid CEO list. Introducing a bracketed wealth tax, starting with those who have over $10 million in wealth, could raise over $30 billion a year—and these rates are low compared to what American politicians are advocating for.⁴

4. Increase the capital gains inclusion rate

Given that share awards are the predominant ways in which CEOs are now paid, instead of cash, capital gains tax breaks are an important way in which CEOs 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. So, if you make money by selling stocks, you pay half the taxes than if you made money working. When stocks are awarded, they simply count as income and are fully taxed. But if they increase in value after the fact and are sold, then the capital gains tax deal kicks in.

A buck is a buck and whether you make it in the stock market or by working a minimum wage job, both should count evenly as income.

Methodology

Data for this report is compiled from the companies’ disclosure of pay for their Named Executive Officers (NEO). Companies on the S&P/TSX composite index as of June 2022 are included, totalling 234 companies with circulars. Proxy circulars from those companies were reviewed, with the highest-paid CEOs included in the top-100 list.

The report considers CEOs, but also other executive positions, which may include the CEOs of subsidiaries who are NEOs. It may also include executive chairs, a powerful position that oversees the CEO. It will also include retired CEOs who are NEOs. The list does not include chief operating or chief financial officers, of which there are many who would otherwise have made the top 100 paid list.

In some cases, CEOs might work for two different companies on the S&P/TSX composite. If one of those companies holds a controlling stake in the other, then the consolidated pay across both companies is used. If a CEO has moved to a different company, then the entries remain separated.

The data above generally starts in 2008. Prior to that, stock options were often valued at exercise, not at award (as they are in 2008 and afterwards). As such, direct comparison of CEO pay prior to that series break might just as easily reflect the difference in valuation and timing of stock options as any underlying change in compensation.

Companies often report executive pay in U.S. dollars. In these cases, amounts are converted into Canadian dollars at a rate of 1.3013, as per the Bank of Canada’s average annual exchange rates in 2022.⁵ Annual worker pay is obtained from the Survey of Employment Payroll and Hours weekly average industrial aggregate wage including overtime.⁶ This figure is multiplied by 52 weeks to obtain an average annual worker’s wage.

The conversion of CEO pay to a daily figure assumes 260 working days in a year (i.e. 52 weeks×five days). This assumes that CEOs and workers have paid statutory holidays. Hours are derived assuming an eight-hour day running from 9 a.m. to 5 p.m.

Notes

1. Statistics Canada, Table 18-10-0005-01 Consumer Price Index, annual average, not seasonally adjusted.
2. Lars Osberg, How Much Income Tax Could Canada’s Top 1% Pay?, October 2015, Canadian Centre for Policy Alternatives (https://policyalternatives.ca/publications/reports/how-much-income-tax-could-canadas-top-1-pay ).
3. David Macdonald, Born to Win: Wealth concentration in Canada since 1999, July 2018, Canadian Centre for Policy Alternatives (https://policyalternatives.ca/publications/reports/born-win).
4. Alex Hemingway, “Why Canada still needs a wealth tax—and what it could fund,” May 2023, Policy Note, Canadian Centre for Policy Alternatives (https://www.policynote.ca/wealth-tax-2/).
5. Bank of Canada, Annual Exchange Rates.
6. Statistics Canada, Table 14-10-0204-01 Average weekly earnings by industry, annual, for 52 weeks.

Acknowledgements

The author would like to thank DT Cochrane and Alex Hemingway for their helpful comments on an earlier draft of this report.