A recent article in a Canadian publication showed that the compensation of the top executives in Canada for 2022 is hitting a new record for all-time highs. The numbers are disturbing. This is not a recent problem. Criticism for extremely high compensation has been in the news for many years. I personally admire people who are successful in their job. I have absolutely no problem with monetary success if wealth is achieved from making the right investments or passed on through as an inheritance when wealthy families have managed to grow their assets. However, when excessive compensation is determined by boards of public companies, I do have a problem. So here is the key question: Is executive compensation out of line?
The answer for me is YES. I will share with you some simple calculations to demonstrate my point. I avoided selecting the highest paid executive on the national list of executive compensation and chose a middle of the pack CEO from a public company with a compensation of $16.4 million for 2022. Salary, Bonus and Stock options. I compared these numbers with an average employee compensation of $60 thousand for a Customer Service Position at the same company.
The CEO salary on its own was thirty-two times the employee’s salary, an okay multiplier, but total compensation was a whopping 273 times the employee compensation. These numbers translate into an hourly rate for the CEO of $ 7,884 versus $ 28.84 for the employee. In other words, the employee would need to work almost 7 weeks to earn what the CEO made in one hour. To check my calculations , see the table at the end of this page.
Disturbed by this comparison, I shifted gears and did another simple calculation. I assumed that this CEO visits the washroom twice a day, once in the morning and once in the afternoon, and that it takes 4 to 5 minutes for each visit (no more details needed here). But what did these two visits per day cost the company? No sarcasm or mockery intended, no opinions, no judgement of any nature, just mathematical calculations. After accounting for an estimated 4 weeks of paid vacation and ten statutory days of holiday, the two visits per day to the washroom cost the financial institution +/- $ 295,650 a year!
Please understand, I only use this example to demonstrate how absurd it becomes when someone’s time is valued this high, whatever their responsibility. I fully understand and appreciate that this CEO has an important position, leading a large corporation with several billions in revenues, a healthy net income, and employing over 100,000 people, but come on! It would take our $ 60,000 a year employee about 5 years to make $300,000.
In general, a private company is owned by the company's founders, management, or a group of private investors. A public company is a company that has sold all or a portion of itself to the public via an initial public offering. The board of directors are essentially responsible for governance, strategic direction, overall accountability, and providing financial oversight. Compensation of $ 63,072 a day seems totally absurd for a public company CEO, and extremely unreasonable for both, shareholders, and employees.
If you are in any doubt, then do your own calculation. What is the value of your company’s CEO? If the CEO skipped daily breaks to the washroom, could they buy a Lamborghini or Bentley with the money they saved? If so, it may be time to reconsider overall compensation!
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