Top CEOs to average worker wage gap increased 243 times in the last decade
Vancity Investment Management (VCIM) is utilizing its shareholder status to demand that the banks' board of directors publicly reveal the CEO salary to median worker wage ratio on an annual basis.
VCIM has a history of employing shareholder advocacy to pressure corporations to tackle issues like climate risks and structural injustices such as the widening pay disparity between CEOs and most of their workforce.
Kelly Hirsch, Head of ESG Analysis at VCIM, and who is attending the AGMs to speak to the proposals in April, said, “Publication of the CEO-to-median worker pay ratio is an important way for investors to hold companies accountable, to ensure profits are distributed across all employees.”
VCIM will present shareholder proposals at the annual general meetings of TD Canada Trust, Royal Bank of Canada, and Canadian Imperial Bank of Commerce (CIBC) (TD) – a similar proposal at Scotiabank last year that called for the yearly disclosure of the CEO salary to average worker pay ratio. Scotiabank has since recognized the importance of this information and started making it public.
For several years, Vancity, the parent company of VCIM, has made its CEO to employee pay ratio publicly available. At present, there is a 14:1 ratio between Vancity’s CEO remuneration which comprises a salary and profit-sharing package of little over $1 million.
It is anticipated that the ratio will be closer to 150 times that of the typical worker for Canada's major banks, whose CEOs are among the best paid executives in the country. Thus, an employee would be paid $1 for every $150 that a CEO earns. The ratio for Scotiabank, as of 2022, was 143:1, or almost $13 million in CEO remuneration compared to an average yearly wage of around $95,000.
“A higher pay ratio could be an indication a company suffers from a winner-take-all philosophy which drives economic inequality. Fair compensation is important for employee satisfaction, which can result in greater productivity and value creation for the company,” Hirsch said.
The rising gap over time is the key point of the VCIM shareholder proposal. According to the most recent CEO pay study from the Canadian Centre for Policy Alternatives, the pay disparity between the richest CEOs and the average worker rose over the past ten years, rising from 155 times to an all-time high of 243 times the average worker wage in 2021.
“It’s an alarming widening in a short time,” said Hirsch. “It comes from an erroneous belief by companies that labour is a cost to manage instead of a value driver. Companies do not operate in a vacuum; they rely on the value of workers and in a healthy, inclusive society a company considers how profits are managed and shared.”
Canadian publicly listed firms are not required to disclose the CEO to median worker pay ratio, unlike those in the US and the UK. Nonetheless, VCIM is holding Canadian banks responsible as they are crucial to the economy and establish a standard for behaviour that impact the whole country.
“There are already well-defined frameworks for calculating this ratio," says Hirsch. “This is not a big ask.”
