In this week’s MacLeans Magazine, Joanne McCracken from B.C. asks “Why must shareholders allow CEO robber barons to continue to rip them off?” She proceeds to argue that CEOs like RIM’s Mike Lazaridis should’t be pocketing $51 million a year – irrespective of “what they do, how hard they work, or how smart they are”. Joanne also cited Duncan Hood, who said that “on average, the best paid CEOs in Canada earn 218 times as much as an average Canadian working full time for a year”.
In response, I would like to offer up a few observations. First, something like how smart a person is or how much time they put in may not be the correct criteria to determine how much they should earn. What ever happened to: they took the initial risk to start a company, which now employs hundreds or thousands of people, creates a ton of value for shareholders, and pays taxes to help support government services? How would you value these things? Second, there’s the argument that shareholders are “allowing” CEOs to rip them off. Well, I’m sure CEOs would say: I’m accountable to the board of directors (who appointed me), who are in turn accountable to the shareholders (who elected them), so if the shareholders are unhappy with a CEO’s pay, then they can do one of two things: (1) influence or replace the board to change the CEO’s compensation or (2) sell their shares and walk away from the company. Plain and simple, this is how corporate Canada works.
So what about the average Canadian working a full time job and earning $30,000 to $40,000 a year? They may be smart and hard-working, but why aren’t they earning more? Well, it has to do with our market system. If these individuals leave the security of a regular paycheck, benefits, and a pension and take on the risk of building their own company from scratch, they do so because, if it works, they’ll be rich, but if it doesn’t work, they’ll be poor and in need of a job with a steady paycheck, etc. So those who take on the risk do so because of the reward. Many people may not like that idea, but that’s how Corporate Canada works. Sure, there’s going to be an element of corporate social responsibility, but businesses are designed to make profit first and foremost. If they can’t do that, they won’t exist and there won’t be any jobs for anyone.