Canada's top 100 CEOs had second-best year for earnings during pandemic, at $10.9M on average: report

A new report from the Canadian Centre for Policy Alternatives (CCPA) has found that in spite of the COVID-19 pandemic, Canada's 100 highest-paid CEOs saw their total compensation rise in 2020 from the year before — reaching its second highest level in the country's history.

The report, titled "Another Year in Paradise," from the left-leaning think tank says Canada's 100 highest-paid CEOs earned an average of $10.9 million in 2020, $95,000 more than what they were paid in 2019, and 191 times more than what the average worker makes. Four of the 100 CEOs were women.

"At this rate it will take the average worker the entire year to accrue what Canada's highest-paid CEOs will rack up just before lunch (11:54 a.m.) on January 4 — the first official working day of the year," the report's author, CCPA senior economist David Macdonald, said in a news release.

"2020 was a horrible year for many workers hit hard by the pandemic, but CEO pay appears to be impervious to any shock to the system."

Although the difference between average CEO and worker pay is the lowest since 2014, the CCPA says this is due to huge portions of Canada's low-wage workforce being laid off or losing hours due to COVID-19 lockdowns.

The report says half of all those paid $17 an hour or less either lost their jobs or working hours during the first few months of the pandemic, which in turn saw average wages go up.

As well, the CCPA notes that the minimum wage required to be included in Canada’s group of 100 top-earning CEOs was $6.1 million in 2020, the third highest on record after 2019 and 2018.

CANADA EMERGENCY WAGE SUBSIDY

Of note, the CCPA highlights that the rise in CEO compensation occurred even as 35 of the companies they led received the Canada Emergency Wage Subsidy (CEWS), a federal program meant to subsidize part of an employee’s wages if an employer saw a certain drop in revenue during the pandemic.

"The CEWS was meant to go to businesses that saw large declines in revenue during the worst of the pandemic, but some companies with the highest-paid 100 CEOs in Canada continued to pay their CEOs extraordinary amounts while receiving the CEWS," the report says.

The CCPA says many of the companies that received the subsidy were profitable and paying cash to shareholders. And despite the program's name, the CCPA report says the subsidy did not require that it be put toward workers' wages — the rules were changed partway through 2021 so companies could no longer collect the CEWS while paying their executives more than in 2019.

"Suffice to say that substantial government support flowed to companies headed by some of the highest-paid CEOs in the country," the report says. "This was facilitated by no real government effort to avoid what should have been an obvious loophole."

BONUS PAY

Changes in bonus pay, such as direct cash bonuses, payment through company stock, and options to buy future stock at set prices, were cited as driving forces behind the rise in CEO compensation.

The CCPA found that variable, or incentive-based, compensation rose to more than 80 per cent of total compensation from roughly 70 per cent a decade ago, with direct shares becoming the dominant form of CEO bonus compensation and salaries becoming less important.

Although 23 of the 100 highest-paid CEOs in Canada had COVID-19 related salary cuts, 10 saw their pay exceed the previous year due to increased bonuses, the report says.

Forty-nine CEOs also headed companies that received the CEWS, saw changes to bonus formulas, or both.

"If there is a singular reason why CEO pay is in the stratosphere, it's because out of control bonuses are protected from going down, even in a pandemic," Macdonald said.

The CCPA also points to changes that came into effect in July 2021 that limited a 50 per cent tax deduction on stock options issued by certain employers to the first $200,000. Had this limit been in place in 2020, the CCPA says 71 of the year's highest-paid CEOs would have exceeded it, but instead saved $63.4 million due to this one "loophole."

The CCPA recommends capping the corporate deductibility, a situation where corporations can deduct executive compensation from corporate taxes, at $1 million total compensation per employee. It also recommends eliminating the capital gains inclusion rate "loophole" and stock option deduction for large companies, higher top marginal tax brackets and a wealth tax.

NDP Leader Jagmeet Singh campaigned in the 2021 federal election to create a one per cent wealth tax for those with a net worth of more than $10 million, as well as a 35 per cent tax on income over $210,000.

For the 2016 tax year, Prime Minister Justin Trudeau’s Liberal government raised the tax rate to 33 per cent from 29 per cent for those earning more than $200,000. The top tax bracket now starts at $216,511 due to inflation.

Finance Minister Chrystia Freeland also has been tasked with creating a minimum 15 per cent tax rule for top-bracket earners, stopping various tax loopholes, helping the Canada Revenue Agency combat tax avoidance, and raising corporate income tax for banks and insurance companies that make more than $1 billion.

TOP OF THE 100

Of the 100 highest-paid CEOs, Canopy Growth CEO David Klein topped the list, earning more than $45.3 million in 2020, nearly all of which came in the form of shared- and option-based awards. Of that total, his salary came in at $281,715 for the year. Canopy Growth also received the Canada Emergency Wage Subsidy.

A statement from Canopy Growth said the company met the requirements for the CEWS, which allowed it to offset the financial impact of COVID-19, hire an additional 1,000 employees and continue to pay 210 employees who could not legally go to work.

"The 2020 compensation package for our CEO, David Klein, should not be considered in the context of any subsequent CEWS application by the company as it was finalized in 2019 prior to the onset of the global COVID-19 pandemic," the company spokesperson said.

The board and compensation committee at Canopy Growth decided to compensate Klein after he forfeited equity-based compensation as part of his package at Constellation Brands, where he was before he officially joined Canopy in January 2020, the company said. His first year of compensation as Canopy Growth CEO also included one-time grants and payments, namely options that are based on hitting annual performance targets.

His total compensation by the company’s fiscal year-end for 2021, or March 31, totalled nearly $3.7 million, the company says, including $1.29 million in base salary and $2.24 million in non-equity incentive plan compensation.

A spokesperson for Gildan Activewear Inc., whose CEO and president Glenn J. Chamandy was fourth on the list of top paid CEOs after earning more than $22.2 million in 2020, said the company and its management team faced "unprecedented challenges" due to the pandemic, with lockdowns reducing sales by 71 per cent in the second quarter of 2020 compared to 2019.

"As a result, Gildan, like many companies in Canada, participated in the Canadian Emergency Wage Subsidy," the company said in a statement, adding it stopped participating in the program in September 2020.

"However, our participation in this program was very limited due to the small proportion of our employees based in Canada (less than 1% of our total global employee population) and entirely consistent with its intended use."

The company says the subsidy prevented immediate layoffs of some Canadian employees, shortened the period that salaries were reduced, and brought furloughed employees back to work earlier than expected.

On compensating its CEO, Gildan says the 2020 amount includes a "one-time special performance-based award" of approximately $9.94 million, which will be paid out at the end of 2023 "only if a sustained and significant share price increase is achieved over a three-year period," which doesn't include when the company received the CEWS.

The company says about $7.26 million of Chamandy's equity-based award also is his annual long-term incentive plan, which vests in 2023 and is dependent on "pre-determined three-year financial objectives."

With files from The Canadian Press