Of fat cats and men

We need to re-examine how we value work
January 17, 2007

Many Canadians woke up on Jan. 2 to the sobering news that by the
time they'd had their morning coffee and settled into another year of
work, the average of Canada's best-paid 100 CEOs had already earned
what the rest of us on average will spend all of 2007 trying to make.

CEOs reached this goal by 9:46 a.m. Jan. 2, to be precise. We all know
that time is money, but that's a bit rich in this case.

For minimum-wage workers, the bad news had arrived much earlier. Just after noon on New Year's Day.

for the lowest-paid of Canada's top 100 CEOs the picture isn't too
shabby: That person passed the average Canadian at about 12:40 a.m. on
Jan. 4. He'll earn about $2.8 million this year.

No matter how
you look at it, the disparity between these CEOs and the rest of us is
stunning. As a group, they make in a year as much as the entire city of
Brandon, Man. -- population 44,000, workforce 27,000.

It doesn't
make sense. Most Canadians would freely concede that someone who
assumes a leadership position at a large corporation works hard and is
expected to deliver for those who depend on the corporation -- so it's
natural they get paid more than the lowest worker on the assembly line.
Perhaps even a lot more. Maybe 10 times as much.

But 240 times as much? That's hard to swallow.

can't even say "it's always been like that" or "that's just the way it
is" -- because it hasn't always been like that. In 1998, the average of
the top 100 CEOs made 104 times the earnings of the average Canadian.
By historical standards, even that was pretty extreme, but since then
the gap has exploded into the stratosphere.

Once the shock has
worn off, it is tempting to say, "so what?" It's not a good thing, but
neither is bad weather or getting older, and we can't do anything about
those things. Besides, many of these CEOs work for companies whose
shares are traded on public stock exchanges and whose shareholders are
represented by boards of directors who make the decisions about how
much to pay their top guy.

But before we move on to the return of winter as the topic of conversation around the water cooler, let's ask some questions.

does the decision get made to pay a CEO -- let alone 100 of them --
such outrageous amounts? Are the compensation committees and boards of
directors really independent of the CEOs? Who does the comparative
studies that are driving the recent explosion in executive salaries?

know, for example, that when Hydro One's board decided on how much to
pay its CEO Tom Parkinson, it ignored CEO pay at other Canadian public
utilities, paying Mr. Parkinson an amount equal to the pay of the CEOs
of Hydro Quebec, Manitoba Hydro and B.C. Hydro combined.

salaries out of control? Institutional investors -- particularly in the
United States -- think so. They are raising tough questions about the
corporate-governance practices that result in CEO pay moving so far out
of line. They're questioning the doubtful relationship between CEOs'
pay and their job performance. They are questioning the practice of
using stock prices and other factors over which a CEO has no control as
a measure of performance in the first place.

Outrageously high
pay for CEOs, however, doesn't just raise questions for shareholders
and corporate governance experts. It raises important questions for all
of us.

Questions about how we value work in our society.
Questions that juxtapose the excessive pay of the CEO against the
incomes of middle-class families that have seen no real increase in 30
years. Questions about how we can justify minimum wages so low that in
every jurisdiction in Canada, working full-time for a full year can't
get your family out of poverty.

It's one thing to ask whether our
top 100 CEOs are really worth that much. It's quite another to ask
ourselves, are workers at the low end of the pay scale truly worth that

There's no single response, no magic-bullet solution to
the questions raised by excessive executive pay. But there are some
simple and straightforward things that could shift the balance in the
right direction.

  • We could base our minimum-wage policies on the
    reasonable proposition that someone working full-time for a full year
    should be able to lift his or her family out of poverty.
  • We could tax stock-option income at the same rate as the wages the rest of us earn, instead of half the rate.
  • We could put greater stock in the idea that a buck is a buck is a buck
    and tax all income the same way, ending the special treatment of
    windfall capital gains.

The possible solutions are endless, and
worth debating. But first, we have to get over the shock that it'll
take us all the rest of the new year to earn what our highest paid 100
CEOs pocketed in a matter of hours and days.

Hugh Mackenzie is an economist and research associate of the Canadian Centre for Policy Alternatives.