The Hook

OTTAWA - The recession may have hammered the average Canadian but a new survey suggests CEOs weathered the storm in fine form.

An examination of the 100 fattest pay packages handed to executives at publicly traded companies in Canada shows they pulled in an average $6.6 million each in 2009.

That's a far cry from the $42,988 the average Canadian makes and it dwarfs the $19,877 a minimum-wage worker would earn in a year.

The study by the Canadian Centre for Policy Alternatives says Canada's best-paid CEOs made 155 times more than the average Canadian.

"Canadians may still be feeling the pain from a worldwide economic meltdown caused by reckless financial speculation but Canada's business elite has preserved its privileged position," writes author Hugh Mackenzie.

The biggest pay package went to Aaron Regent at Barrick Gold Corp., (TSX:ABX) who made $24.2 million in 2009, according to Mackenzie's calculations. In second place was Hunter Harrison at Canadian National Railway Co., (TSX:CNR) at $17.3 million, followed by Gerald Schwartz at Onex Corp (TSX:OCX)., at $16.7 million.

Still, CEO earnings dropped from the previous year.

Mackenzie's study of 2008 compensation showed CEOs were earning 174 times the average Canadian, compared to the 155 ratio for 2009.

In 2008, CEOs were paid an average of $7.3 million, or almost 11 per cent more than 2009 — not taking inflation into account. Average Canadians, meanwhile, saw a very small climb in their earnings in 2009, keeping pace with inflation.

It's possible that the gap has begun to shrink, Mackenzie says. But generally, CEO pay packages are much higher nowadays than during the 1990s. In 1998, for example, the top 100 CEOs made 104 times the average Canadian.

Since then, CEO pay has outpaced inflation by 53 per cent, while average earnings rose just four per cent more than inflation over the same 10 years, Mackenzie figures.

"The gap has been growing pretty substantially over the last 20 years," he said in an interview.

He says the number-crunching actually underestimates the true earnings of CEOs because of the conservative way corporations report the value of stock options in their executive compensation disclosures.

He estimates that the big banks, for example, are under-reporting the value of 2009 stock options by about $5.1 million per CEO.

The rise in executive pay partly helps to explain why income inequality in Canada is growing so quickly, Mackenzie says.

It's a problem, he argues, because most executive packages are tied to future share prices, rather than the day-to-day functioning of the company. So instead of paying close attention to the firm's long-term returns and actual production, executives are tempted to increase short-term value in order to boost stock prices.

"These pay systems provide powerful incentives to these corporate leaders to make decisions in their short-term interests but that are not necessarily good for the long term," Mackenzie says.

Public resentment of such big compensation packages has soared in the United States in the wake of the financial crisis and bail-out packages that inadvertently rewarded top bankers whose firms were failing.

Canada, however, has not seen much of a backlash, Mackenzie says.

He looks to the tax system for solutions. If Ottawa taxed capital gains the same way it taxed ordinary income, corporate boards would not be so tempted to tie bonuses to the stock performance, Mackenzie argues.

But he doesn't see much political will to increase taxes on the rich.