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The Canadian Centre for Policy Alternatives (CCPA) annual CEO pay report reveals that a disturbing number of Canadian corporations now pay their top five executives more than they pay in corporate income tax.
This illustrates not only how much CEOs and top corporate executives are being paid, but also how little corporations pay in corporate income tax. These troubling trends are linked in a number of different ways.
The CCPA’s report shows that compensation for Canada’s top 100 CEOs reached record levels in 2018: an average of $11.8 million each and a shocking 227 times the average worker’s pay. These CEOs made as much on average by 10:09 am on January 2 as the average worker did all year.
Of the 108 large corporations (over $2 billion market cap) on the TSX composite index that were profitable in the previous five years, 14 (13%) paid their top five executives more in 2018 than they paid in corporate income taxes on average over the 2014-18 period.
Even when firms were losing money, executive pay remained at exorbitant levels. Of the 134 large companies on the TSX/S&P composite index, 26 lost money over the 2014–18 period. A third of the companies that lost money paid their top five executives more than 40% of the value of their losses – undermining the myth that executive compensation is closely tied to corporate performance.
The list of major corporations that paid their execs more than they paid in corporate taxes include well-known Canadian companies such as Air Canada, Shopify, Blackberry, Encana, Maple Leaf Foods, Hydro One and others (see below).
The CCPA has published its CEO pay report for the past 13 years, but this is the first time it has looked at what the corporations were also paying in corporate taxes. Canadians for Tax Fairness collaborated with the CCPA in this research.
Unfairnesses in our tax system help to perpetuate excessive executive pay and income inequalities in numerous ways.
Preferential tax rates on stock options and on capital gains income, such as income from shares, allow executives to pay half the rate of tax as the rest of us pay on our regular income and create incentives to increase pay to executives in these ways. These types of compensation make up the bulk of most CEO pay packets and has also made corporate executives more aggressive in avoiding corporate taxes as well.
These tax loopholes are also highly regressive along income and gender lines. For example, over 90% of the benefits of the stock option loophole go to the top 1% and 77% goes to men. The same is true for other regressive tax loopholes.
The Liberal government promised in last year’s budget to partially close the stock option deduction loophole, but this promise has been delayed again. The loophole should be completely closed, not left open so some executives can benefit and not others.
Corporations in Canada are also able to deduct the cost of executive compensation for tax purposes. In the United States, the amount that corporations can deduct is capped at $1 million for each executive, although “performance pay” isn’t included in this. The federal government should limit the amount of all compensation that corporations can deduct for each executive to no more than $1 million.
Lower corporate tax rates have coincided with the steep rise in CEO and executive pay and very well may have helped fuel them, as many of the top paid executives come from corporations that pay little in income taxes. There’s also evidence that firms with strong unions—or any unions at all—and that presumably pay their workers more decent wages, provide less excessive executive pay packets.
As a way of curbing this and excessive executive pay, U.S. presidential candidate Bernie Sanders has proposed that corporations that pay their executives more than 50 times what they pay their median workers would have to pay higher rates of corporate income tax. It’s a good idea that should be considered in Canada as well.
Large corporations also avoid paying their fair share by using tax havens and tactics such as profit-shifting between jurisdictions with lower to no tax rates. Bay Street and Tax Havens, a 2017 report by Canadians for Tax Fairness, found that over 90% of the largest corporations in Canada—the TSX60—have subsidiaries in tax havens.
Tax loopholes deliver a two-fold blow to the economy by draining federal revenues that could be spent on essential programs such as affordable childcare or building green infrastructure --important investments that can stimulate the economy and help all Canadians rather than only millionaires.
Canadians for Tax Fairness and the CCPA have called for a number of progressive tax measures that would help to curb these excessive levels of CEO pay and growing inequalities, including:
- Eliminating the stock option deduction, increasing taxes on capital gains and other regressive tax loopholes.
- Limiting corporate deductions for executive pay to no more than $1 million per executive for all forms of compensation.
- Increasing corporate tax rates.
- Raising taxes on top incomes and the wealthiest.
- Strengthening enforcement, rules and penalties to prevent corporations and the wealthy from avoiding and evading taxes.
These measures would generate many billions annually that could be used to fund important public programs—such as child care, pharmacare, dental care, affordable housing and more—that would make life more affordable for Canadians who need help the most.
The corporations that paid their executive suite more in 2018 than they paid in corporate income tax include:
- Air Canada paid their executive suite $25 million in compensation in 2018—including $11.6 million to their CEO Calin Rovinescu—but only paid an average of $6 million in corporate income taxes over the past five years on average annual profits of $594 million.
- Maple Leaf Foods paid their executive suite $12 million in 2018—including $6.7 million to their CEO, Michael McCain—but only paid an average of $2 million in corporate income taxes on average annual profits of $74 million over the past five years.
- Gildan Activewear paid their top five executives $18 million in 2018—including over $10 million to their CEO—but only paid an average of $12 million in corporate income taxes over the past five years on annual average profits of $458 million.
- Hydro One, which was privatized by the Ontario government in 2015, paid their top executives a total of $21 million in 2018—including $5 million each to their two former CEOS—while it only paid an average of $20 million in corporate income taxes on average annual profits of over $840 million over the past three years.
- Shopify paid their executive suite $36 million in 2018—including $15.9 million to their COO Amy Shapero and $11.1 million to their CEO, Tobias Lütke—and has paid no corporate income tax in the past five years.
- Blackberry paid their executive suite $146 million in 2018—including an eye-watering $142 million to their CEO, John Chen—while it has received corporate tax refunds every year in the past five years.
- Encana Corp paid their executive suite $24 million in 2018—including over $15 million to their CEO, Doug Suttles—it while it has also received an average of $106 million in corporate tax refunds per year over the past five years.