Redistributing 100% of CEO pay would give employees 90¢ per day, according to the MEI

Montreal, January 2, 2015 — At the start of each year, the Canadian Centre for Policy Alternatives (CCPA) releases a report on CEO pay in Canada. Last year, it pointed out that the average total compensation of the 100 highest paid CEOs was 171 times higher than the average wage earned by Canadians. But what is the true purpose of this study, may we ask?

Although the CCPA does not make any explicit recommendations in its report, it does state on its website that it considers worsening income and wealth inequality in Canada “one of the biggest challenges of our time.” It also claimed in its news release last year that there is no clear relationship between CEO compensation and any measure of corporate performance.

One possible implication is that these CEOs make too much money, and their pay should therefore be redistributed among their employees. Using information and figures from the report the CCPA released last year, the MEI’s researchers crunched a few numbers to see what effect this would have on the well-being of those employees.

Dividing the total compensation of the 100 highest paid CEOs in Canada ($796 million) by the total number of employees working for those CEOs (2,423,530) would provide each of them with the sum of $328 per year. Redistributing CEO compensation in its entirety to their employees (which is an extreme measure that not even the CCPA proposes) would therefore provide each of those employees with approximately 90¢ per day. Given that the average annual income of Canadians listed in that same report is $46,634, this would represent a 0.7% wage increase.

An alternate recommendation could be instead to impose a 100% tax rate on these CEOs and to redistribute this $796 million among low-income Canadians, of which there were 4.7 million in 2012. This would similarly have an absolutely negligible effect on well-being, as they would each receive a total of 46¢ per day.

“Even if we assumed, completely unrealistically, that these top CEOs would keep doing their jobs for zero compensation, redistributing their before-tax pay would basically have no effect whatsoever on the well-being of either their employees or low-income Canadians,” concludes Michel Kelly-Gagnon, President and CEO of the MEI. “The CCPA’s annual report is therefore an exercise in envy, pure and simple, with nothing useful to contribute to serious discussions of public policies aimed at helping the less fortunate.”

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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Interview requests: Youri Chassin, Economist and Research Director, MEI / Tel.: 514-273-0969 ext. 2229 / Cell.: 514-594-4737 / Email: ychassin@iedm.org