Mr. Speaker, we are nearing the end of 2016. New Year's Day 2017 falls on a Sunday. The first payday of the new year will be January 2. By around noon on January 3, Canada's top 100 CEOs will, on average, have made as much money as the average full-time employee will earn over the entire year. In 2013, and again in 2014, Canada's top CEOs made an average of $9 million each. That means that the top CEOs made 184 times as much as the average Canadian worker.
This inequality is not only large, but it is growing. Figures on the top 100 CEOs only go back to 2008 on a comparable basis, but if we look at the top 50 CEOs, an even more elite group, in 1995 they made only 85 times as much as the average worker, so there has been an explosion of executive compensation over the past two decades.
Why should we care if private companies choose to pay their CEOs a lot of money? If we take the 100 top CEOs, each making an average of $9 million, that is nearly $1 billion that is not being used to hire other employees, not being invested in machinery and equipment, and not being used for needed research and development. Corporate Canada as a whole would be better off if it could pay CEOs less. However, individual corporate boards feel pressure to keep up with what CEOs of other companies are paid. This leads to a circular logic that justifies ever higher executive compensation.
Even the CEOs themselves do not really benefit from this trend. An extra million dollars does not make a material difference in their standard of living. Really, they are concerned about their relative position compared to other CEOs, so if a CEO gets paid more it increases his or her position on the league tables only by reducing the position of other CEOs. Our economy would be stronger, and even corporate Canada itself would be better off with government regulation to limit CEO compensation.
Bill C-25 includes some minor improvements to corporate governance, but what is missing is the mandatory and binding say on pay provisions that we find in other advanced economies. Currently, Canadian companies can consult shareholders on executive compensation, but they are not bound by the results of those votes. The NDP is going to propose amendments to Bill C-25 to include mandatory and binding say on pay provisions to limit executive compensation.
Beyond the scope of Bill C-25, the federal government can and should also address out-of-control executive compensation through the tax system. I believe in giving credit where it is due, so I want to recognize that this government did modestly increase the top personal income tax rate. However, the government failed to close the loophole that allows half of stock options to be exempt from personal income tax. This stock option loophole delivers the largest benefit to highly paid CEOs and corporate executives, so we need to close that loophole to address executive compensation.
Something else that the federal government could do is to limit the amount of executive compensation that a corporation can deduct in calculating its corporate taxes.
The United States currently limits the amount of CEO compensation that can be deducted in calculating corporate taxes to $1 million. Unfortunately, this limit is not very effective in the United States because it does not apply to performance-based compensation, such as stock options. However, we could easily apply a limit to all forms of executive compensation and ensure that they cannot be deducted in calculating corporate income taxes.
In conclusion, out-of-control executive compensation is a significant source of worsening inequality, and is a substantial drain on our economy. The Government of Canada can and should address this problem by strengthening corporate governance through Bill C-25, and also by implementing progressive tax reforms.