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Canadian CEOs make 171 times average, let's talk maximum wage

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Peter Drucker, “limit executive pay,” Creative Commons photo

In November 2013, people in Switzerland voted in a referendum on something called the 1:12 Initiative for Fair Pay. Under that proposal no one in a Swiss company would earn more in a single month than someone else in that company earns in an entire year. Corporate spokespersons in Switzerland and some in government warned of dire negative economic consequences if such a proposal were accepted. Although it was defeated by a significant margin, it is significant that the issue was being discussed at all.

It is a debate that we should have in Canada. The Canadian Centre for Policy Alternatives reports that in 2012 Canada's top 100 CEOs pocketed an average of $7.96 million. That was an income equal to 171 times that of the average Canadian worker, and 194 times that of the average female worker.

Growing inequality

In fact, the Globe and Mail newspaper reports that those who are already affluent have benefited handsomely from Canada’s economic growth and productivity gains in the past 30 years. But real income for most people has barely budged in that time. The reasons cited are many.

Globalization rewards the highly specialized skills of some people but there is less demand for the skills of others. For example, the manufacturing sector in Canada has been hard hit as companies move abroad where wages are low, working conditions are inferior and environmental regulations are lax. Canadian factory workers who are laid off, particularly if they are older, are not in demand and their future may be grim.

Economic equality has been further undercut by the falling rate of unionization, by government tax cuts, and the resulting decline in transfer payments and public services needed to pay for those tax breaks.  We are becoming a less equal society and one conspicuous example of that is the yawning difference between CEO incomes and those of most others.

Chorus of justification

Any criticism of that disparity triggers an immediate chorus of justification from its defenders. The well-worn argument in Switzerland was that the Initiative for Fair Pay would make their companies less attractive and their country a less competitive place in which to do business.

In Canada, greed-is-good advocates such as the CBC's business pundit Kevin O’Leary celebrate the income gap. O’Leary and others argue that the market dictates the salary levels for skilled and motivated people.

Peter Drucker

That is  something the late Peter Drucker, a highly-regarded American business theorist, once dismissed as being "nonsense." Drucker said it was not the market but rather the “internal logic” of corporations -- hierarchical in nature and controlled by their managers -- that dictated levels of pay. Drucker called for a published corporate policy fixing the maximum compensation of all corporate executives 20 to 25 times that paid to the lowest regular full-time employee.

Lee Valley Tools

Leonard Lee has put that philosophy into practice at Ottawa-based Lee Valley Tools. In his company, the highest-paid worker never makes more than 10 times the wage of the lowest-paid. Lee has profit sharing in his company, too, and as he told the The Globe and Mail, a flatter pay structure results in better worker retention and more engaged staff.

Wagemark Foundation 8:1

Meanwhile, a Toronto-based organization called the Wagemark Foundation is advocating for an international wage standard that makes sure the ratio between the highest and lowest earners is no greater than 8:1. Peter Macleod, Wagemark’s director, knows that it will be a tough sell to companies and even some non-profits, but his organization believes that large wage gaps undermine good business practices and have proven “detrimental to economic growth and the existence of a healthy middle-income population.”

Eye of the needle

Quite aside from the policy discussion there is a question of fundamental values. Who would want to be paid 171 times more than someone else in their company, and why would anyone want all of that money? What was it that the bible said about camels and needles?

This article appeared in slightly shorter form in a United Church Observer blog on February 27, 2014.

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