A lesson from Switzerland

A salary cap for CEOs? Not a bad idea. Would any North American government try it?

Get out the red paint and colour me a socialist, because I’m about to decry wage inequality.

Later this month, Switzerland voters will have their say in a referendum calling for a cap on CEO salaries to 12 times the salary of the company’s lowest paid staff member.

While this proposal may or may not pass, the fact is that Switzerland already has far greater wage equality than Canada and the U.S.

At the moment, Swiss CEOs earn about 43 times the average worker.

Meanwhile in Canada, studies show that in 2011, our top 100 CEOs earned 175 times more than the average Canadian.

Put another way, by 1:18 p.m. on January 2, Canada’s top 100 CEOs will have already pocketed $45,448. It takes the average Canadian an entire year of full-time work to earn that.

Inequality is the steepest in Calgary, where the richest one per cent earn 26 times the average Canadian worker. In Vancouver, that figure is 15 times the average, while in Halifax and Ottawa it is 11 times the average.

Resource, pharmaceutical and technology companies paid their CEOs the most in 2011. The year’s largest earner was Frank Stronach, former CEO of Magna, which makes technologically advanced automotive systems. With a base salary of $68,000, Stronach earned a $38 million bonus that year.

Bradley Shaw of Shaw Communications earned $15.8 million in 2011, placing him at number four.

The Bank of Montreal and TD Bank paid their CEOs $11.4 million, while RBC paid theirs $11.2 million.

Don Lindsay, Teck Resource’s CEO was number 22 on the list, earning a base salary of $1.3 million, a bonus of $1.4 million, shares of $2.9 million, options of $2.9 million and a pension of $495,000, totalling $9.3 million.

These statistics are courtesy of the Canadian Centre for Policy Alternatives.

Yet compared to other Western economies, Canada is about average, according to the Gini Index. Worse than us is Japan, Australia and the U.K, but we are less equal than Spain, Germany, Austria and Sweden.

Wage inequality in the U.S. is close to the worst. CEOs earned 231 times the typical worker in 2011. In the restaurant industry alone, the average pay for a restaurant CEO is $11.8 million, a staggering 788 times what a worker on minimum wage would earn working full time in a year.

Putting Switzerland’s proposal aside, what can Canada do about wage inequality? Many say that if CEOs were being paid more than they are worth, shareholders and the directors of the board wouldn’t stand for it.

But if the governance of one company lowered its CEO’s salary, they would simply find it impossible to fill the position. It would need to be an equal drop in all of the country’s top-paying positions.

Taxation, of course, goes a long way to remediate the inequality across the board.

Researchers at the Ottawa-based Centre for the Study of Living Standards found that between 1981 and 2010, before-tax income rose 19.4 per cent. But government taxation and benefits meant that income inequality rose 13.5 per cent during that period. That means that income inequality was 44 per cent less severe than it would have been had government not intervened.

This all goes to indicate that a salary cap for CEOs is a pretty good idea (thanks very much, Switzerland). Yet no North American government would try it, because it would be hugely unpopular among the people who fund political campaigns. And there’s the rub.

There seems to be no way around it. And that’s very grim.