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By Jason Clemens
and Joel Emes
The Fraser Institute

Along with the perennial new year resolutions, January also typically features a swath of commentaries decrying the pay of chief executive officers and demands for new regulations and taxes. But these calls for ever-larger government interventions on entrepreneurs and businesses miss the bigger picture – and risk harming the Canadian economy.

There’s no doubt that the compensation of Canada’s top CEOs has reached unparalleled heights. According to the Globe and Mail’s annual survey of Canada’s top 1,000 CEOs, the average compensation for the top 100 CEOs in 2016 was $9.6 million. This put the ratio of the top CEOs’ compensation relative to an average worker ($49,738) at 194 to 1. That’s startling.


This finding, which echoes previous analyses, will surely prompt calls for higher taxes and new, large-scale regulations limiting what firms and entrepreneurs can pay executives. But, inconveniently for those calling for such interventions, the story is much more complicated.

Let’s first extend the analysis of CEO compensation. If we examine the next 100 CEOs, the average compensation falls to $3.4 million, which results in a CEO-to-worker compensation ratio of 68 to 1. There’s still a marked gap but it’s substantially smaller compared to the results for the top 100 CEOs.

If all CEOs in the survey are included, the average CEO compensation falls to $2.1 million, a decline of 78.4 percent compared to the top 100. And the ratio of CEO-to-worker pay falls to 42-to-1. The reality is that the marked difference for compensation for CEOs, whether measured in pure dollars or as a ratio to average workers, only exists for the very top CEOs who manage the country’s largest and, in most cases, most successful companies.

But does the story end with corporate Canada?

Here’s where the calls for new taxes and regulations fall flat. The top talent across most sectors of the global economy have enjoyed substantial increases in compensation in recent decades. Taylor Swift, for example, was the top musician in 2016, earning US$179 million, while Dwayne ‘The Rock’ Johnson was the top actor (US$64.5 million). The top earners in sports, entertainment and music, to name just a few sectors outside business, all earned compensation more than comparable with the earnings of top CEOs.

Joel Emes

Clearly, top talent is earning higher compensation across the economy.

Research provides two principal explanations. First, the market has expanded through freer trade and, more importantly, technological advances. The market for Swift’s music, Johnson’s movies or the products of many of Canada’s largest firms are no longer a single country, or even North America, but rather global. The larger market increases the value of top talent.

The second explanation is that the aptitude and skills of top talent are not easily substituted by lesser talent. Top talent, whether in business, entertainment, sports or elsewhere, is not easily replaced by the next best available person. It’s just not that easy to replace Sidney Crosby or Steve Jobs.

A third factor to consider is that top talent is incredibly mobile.

It’s not at all clear how an individual firm, or the jurisdiction where it’s located, is made better off by introducing punitive taxes and/or additional regulations limiting compensation when top talent is highly mobile and difficult to replace.

Indeed, there’s a strong argument to be made that lower taxes and more flexible regulations are needed to attract more, not less, of the globe’s top talent to Canada.

Jason Clemens and Joel Emes are co-authors of a recently released study on CEO pay by the Fraser Institute.

Jason and Joel are Troy Media contributors. Why aren’t you?

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