Focusing on CEO pay is a costly distraction

It's a brand new year, but the Canadian Centre for Policy Alternatives (CCPA) is peddling the same old story, releasing yet another report on the remuneration of Canada's 100 highest paid CEOs. The CCPA likes to point out that by around noon on the first working day of the year (that is, the second paid day of the year), these top executives have already pocketed what it takes the average full-time worker in Canada the entire year to earn.

The more or less explicit implication is that the gap between the remuneration of these CEOs and the average salary in Canada justifies greater wealth redistribution. By increasing income tax rates and limiting deductions, the CCPA claims that governments could use these additional revenues to finance public services that would benefit the population.

There are several problems with this line of reasoning. First of all, using the data from last year's CCPA report, my colleagues at the MEI calculated the maximum theoretical effect that raising taxes on Canada's top CEOs could have on the overall budget of Canada's different levels of government. The total remuneration of the 100 highest paid CEOs in Canada, some $921 million, is equal to just 0.13% of government revenues in Canada, which total a whopping $720 billion.

To put this in perspective with a comparison similar to that used by the CCPA, their total annual salaries would be entirely spent by governments by 10:37 a.m. on the very first day of the year. In other words, this wouldn't even make a dent on public finances, even assuming that these captains of industry would keep working without getting paid, simply out of the goodness of their hearts.

Of course, in addition to being an ineffective means of raising government revenues, high tax rates are a drag on wealth creation — and wealth creation is what actually raises standards of living for everyone.

Focusing on inequality also obscures the fact that individuals are not stuck at the same salary levels their whole lives. Indeed, social mobility is high in Canada. Just 13% of individuals who were in the bottom income quintile in 1990 were still in that same quintile 20 years later.

There is a legitimate debate to be had regarding the remuneration of the CEOs of large corporations. But it has to do with corporate governance and the ability of shareholders to have their points of view properly reflected in the decisions of boards of directors.

Hockey fans understand that Montreal Canadiens goalie Carey Price is pretty crucial to his team's success. At the end of the day, it's up to shareholders to determine if a certain star CEO is just as essential to a company's success.

Dangling the prospect of being able to pay for a multitude of social programs by excessively taxing the salaries of top CEOs is a costly distraction. It serves only to stoke people's envy, and contributes nothing constructive to serious discussions of public policy.

Michel Kelly-Gagnon is President and CEO of the Montreal Economic Institute. The views reflected in this column are his own.

Back to top