Closing the income divide: The time has come to limit CEO over-compensation

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Balsillie, Stronach, Desmarais, Thomson, Asper. Do these names sound familiar?

Indeed, they are the names of some of Canada's most successful business executives. It is undoubtedly true that their companies are vital to the Canadian economy. Together they are employing hundred of thousands of Canadians and competing with other companies internationally.

But what about their compensation? What about their responsibilities to make Canada a more "ethical businessplace"? What about their contributions to a less divided Canada where the rich are getting richer and the middle-class is losing its share of the economic pie?

According to data compiled by the Globe and Mail, the ratio of the highest-paid worker in Canada to the lowest-paid one jumped from 84 to 122 in the last decade.

The Canadian Centre for Policy Alternatives provides us with even more worrisome figures. According to the think-tank, in 2011 Canada's top 50 CEOs (a list including the names I mentioned above) earned an average of 235 times more than the average Canadian worker. In 1995, it was 85 times more.

In the economic literature, there is a huge number of studies tackling the issue of executive compensation. In a nutshell, there are two important views: one is for and one is against.

The proponents of executive over-compensation evoke the importance of compensation as the only incentive for performance. Basically, it is the only "carrot" making the horse run and arrive at its destination on time.

The opponents of that view are rightly pointing to the poor performance of many executives and the companies they run.

So it is obvious that the "carrot" is increasingly becoming a useless tool for measuring performance. Rather, it can be described as a fashionable trend where the more you make the better you are perceived in the market. A performance measure? Many doubt it.

Of course, among this diversity of opinions, there is the mighty Wall Street Journal's praise of Swiss wisdom where, last month, nearly two-thirds of the voters defeated the dreams of Socialists (me included) and turned down a proposal to limit the highest-paid to lowest-paid worker to a 12:1 ratio.

The Wall Street Journal argued that such a limitation, if passed, would be "driving the wealthy out rather than improving the lot of the lowest paid."

I can't figure out how a serious newspaper could use such a silly argument since the main idea behind restricting the compensation of executives is to reduce the equity gap between the richest and the poorest.

So according to them, the money taken out of executives' pockets will disappear or fly away? Or do they imply it will go to the government and the poor won't see its colour? Or maybe were they thinking that the lowest paid do not deserve it anyway?

Back home, we have been hearing in the last decade from politicians and corporate leaders that if we don't cut tax rates, businesses will run away. If we don't pay CEOs millions of dollars, then companies will not perform adequately and our productivity will go down, the argument goes.

Today, our productivity is still lagging compared to the Americans; many businesses have still moved out of Canada looking abroad for cheap labour and meanwhile our unemployment rate stagnates at around 7 per cent, with most of the jobs being created being either part-time or precarious.

So where does the truth lie?

Recently, the Conservative government started a campaign to attack the unions. The attack is both subtle and arrogant.

Hiding behind ideals of transparency and accountability, the Conservatives are trying to pass new legislation (Bill C-377) that would force unions to publicly disclose spending and the salaries of their leaders. But how about a bill to limit the soaring compensation packages of Canadian executives?

I already know the reply: free economy, laissez-faire rules.

But how about learning from the Americans who are the "gods of the free economy" and who, with the Dodd-Frank Wall Street Reform and Consumer Protection Act, created legislation that requires executives' compensation to be put to shareholders for a vote at least every three years.

Note that CEOs are still not included here. Nevertheless, it is a promising step that the Canadian government should learn from.

Perhaps Leonard Lee, the owner of Lee Valley Tools, a Canadian company selling woodworking and gardening tools, is not as well known among Canadians as the names above -- however, he has ensured that the highest-paid to lowest-paid ratio in his company never goes beyond 10:1.

Mr. Lee should be a business inspiration for many.

Monia Mazigh was born and raised in Tunisia and immigrated to Canada in 1991. Mazigh was catapulted onto the public stage in 2002 when her husband, Maher Arar, was deported to Syria where he was tortured and held without charge for over a year. She campaigned tirelessly for his release. Mazigh holds a PhD in finance from McGill University. In 2008, she published a memoir, Hope and Despair, about her pursuit of justice, and in 2011, a novel in French, Miroirs et mirages.

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