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U.S., U.K. Track How Employees’ Salary Stacks Up Against CEO Pay: Is Canada Next Stop for CEO Pay Ratio Disclosure?

October 21, 2019

Each year in January, the Canadian Centre for Policy Alternatives (CCPA) publishes a report on the compensation of the 100 highest-paid chief executive officers (CEOs) of companies on Canada’s S&P/TSX Composite Index, and includes a comparison between the CEOs’ compensation and the average annual income of a Canadian worker.

There’s a growing interest in executive compensation relative to other compensation levels and it’s stirring international debate. In part in response to this debate, countries such as the United States and the United Kingdom have amended their disclosure rules to require public companies to disclose ratios comparing the CEO’s pay to that of the company’s median employee (known as CEO pay ratios).

Canada does not currently have a requirement to disclose CEO pay ratios. However, the growing adoption of such rules in other jurisdictions raises the question whether similar disclosure requirements may soon be implemented in Canada.


CEO pay ratio disclosure rules were adopted by the U.S. Securities and Exchange Commission (SEC) in August 2015. Domestic reporting issuers were required to begin providing such disclosure for fiscal years beginning on, or after January 1, 2017. Certain issuers, including smaller reporting companies, foreign private issuers and Canadian multijurisdictional disclosure system filers, are exempt from such disclosure requirements.

Under item 402 of regulation S-K, domestic issuers must disclose:

  • The median of the annual total compensation of all employees of the registrant, except the principal executive officer of the registrant
  • The annual total compensation of the registrant’s principal executive officer
  • The ratio of the amount in (i) to the amount in (ii) (expressed as either a ratio or in narrative form).

The rules provide issuers a large degree of flexibility in identifying the “median employee” and calculating annual total compensation. Specifically, the rules require issuers to use “reasonable estimates” in the methodology employed. Companies must disclose the methodology used and adjustments, assumptions and estimates made to identify the median employee and determine total annual compensation.

Issuers are permitted to use their employee population, statistical sampling or other reasonable methods to identify the median employee. For the purpose of this analysis and subject to limited exceptions, the term “employee” includes all employees (including seasonal, temporary and part-time workers) employed by the issuer or its consolidated subsidiaries located in the United States or abroad. However, employees located outside of the United States may be excluded provided that the total number of excluded employees is less than five per cent of the total number of employees worldwide. Issuers may also exclude leased workers and independent contractors whose compensation is determined by a third party unaffiliated to the company. SEC guidance provided in September 2017 noted that in determining whether a worker is an independent contractor or an employee, a widely recognized test under another area of law such as employment law or tax law may be used.

The median employee may be determined by reference to annual total compensation or another compensation measure consistently applied to all employees. Issuers are further permitted to make “cost-of-living adjustments” to employees’ compensation in order to adjust such figures to the cost of living in the CEO’s jurisdiction.

The large degree of flexibility provided for calculating CEO pay ratios has made it difficult to draw comparisons between companies even where such companies operate within the same industry. For example, as disclosed in their respective 2019 proxy materials, T Mobile reported its CEO pay ratio as 1,116:1 whereas AT&T Inc. reported its CEO pay ratio as 304:1 and median pay was reported as US$59,653 and US$95,814, respectively. Large variances such as these have raised questions as to whether such disclosure is meaningful for investors.

The 2019 proxy guidelines of Glass Lewis & Co. (Glass Lewis) and Institutional Shareholder Services (ISS), two shareholder proxy voting firms that provide advice and governance to larger institutional investors, both note that CEO pay ratio disclosure will be included in their proxy papers but that such ratio will not be considered in their voting recommendations.

Some have suggested that although the requirements to disclose CEO pay ratios may have been less impactful than was initially expected, such disclosure requirements have opened the door to demands for additional employee and compensation data. In December 2018, a group of 48 institutional investors and advisors with assets under management of approximately US$3.3 trillion wrote to S&P 500 Index companies seeking additional disclosure on CEO pay ratios in proxy statements. In particular, the letter requested further information regarding items such as the breakdown of full-time versus part-time employment status, geographic location of the median employee and workforce education levels and skill sets.

According to an article published in the Harvard Law School Forum on Corporate Governance and Financial Regulation, such requests suggest that “compensation disclosure is converging with broader concerns about issues such as gender, race and ethnicity pay equity, culture, diversity and inclusion, and employee engagement”.


Proposals by the European Commission to require a binding vote on a wide range of sensitive remuneration benchmarks, including CEO pay ratios, were included in the 2014 Shareholder Rights Directive proposal (Proposal). However, revised versions of the Proposal did not include the requirement to disclose CEO pay ratios. For more information on the Proposal see our July 2014 Blakes Bulletin: Is CEO Pay Ratio Disclosure Coming to Canada?

In the U.K., new regulations came into force in early 2019 requiring quoted U.K. public companies with more than 250 U.K.-based employees to disclose the ratio of their CEO’s total remuneration to the equivalent remuneration for the upper quartile, median and lower quartile of their full-time U.K. employees.

“Quoted” U.K. companies include companies incorporated in the U.K. with shares listed on the London Stock Exchange, an exchange in a European Economic Area member state, the New York Stock Exchange or NASDAQ. Under the regulations, there are three different methods that companies can use to calculate CEO pay ratios.

The U.K. rules are applicable to the first financial period to commence on, or after, January 1, 2019 so initial results won’t be disclosed until 2020. However, some influential bodies have called on companies to adopt such requirements earlier. For instance, The Investment Association has been advocating for CEO pay ratio disclosure for several years and it calls on companies to voluntarily begin reporting pay ratios in their 2019 disclosure documents.

CEO pay ratio disclosure in the U.K. is also part of a broader set of disclosure requirements related to human capital. For example, organizations with 250 or more employees based in the U.K. must also publish and report figures relating to their gender pay gap via a written statement on their public-facing website. In addition, this data must be reported to the government through an online portal.


In Canada, there is currently no requirement to disclose CEO pay ratios and shareholder proposals regarding pay ratio disclosure have overwhelming been defeated. A 2019 proposal for the Royal Bank of Canada by the Mouvement d’éducation et de défense des actionnaires (MÉDAC), a Quebec-based organization representing non-institutional shareholders, was rejected by 94.59 per cent of shareholders. Similar proposals with respect to the Bank of Nova Scotia and the Bank of Montreal also failed with similar vote percentages.

Despite the lack of shareholder support for such proposals, many large Canadian financial institutions disclose that they use CEO pay ratios internally to provide context when reviewing and setting remuneration. As noted in the Bank of Nova Scotia’s 2019 proxy circular, the bank conducts an external vertical pay analysis that compares its CEO’s compensation to the median Canadian family income.

While the U.S. version of the 2019 proxy voting guidelines of Glass Lewis and ISS discuss CEO pay ratios, their Canadian counterparts do not mention CEO pay ratios. Furthermore, the voting proxy guidelines of major Canadian institutional investors, such as OMERS, Canada Pension Plan Investment Board and Caisse de dépôt et placement du Québec, do not refer to CEO pay ratios.

The Canadian Coalition for Good Governance (CCGG), which represents many of Canada’s largest institutional investors and asset managers, has expressed concerns that CEO pay ratios distract from other issues around compensation. Specifically, CCGG notes the lack of comparability of such disclosure.

As is the case elsewhere, the debate in Canada around CEO pay ratios has broadened to include a wider range of human capital matters. Interestingly, in addition to publishing its annual report regarding CEO compensation, in 2019, the CCPA also published its first report examining gender pay gaps among corporate executives.

Amendments to the Canadian Business Corporations Act (CBCA) requiring say-on-pay votes are also on the horizon and may lead to enhanced pressure on regulators to adopt CEO pay ratio disclosure rules. These amendments also require CBCA corporations to provide diversity disclosure (beyond gender-based disclosure) with respect to Aboriginal Peoples, persons with disabilities, members of visible minorities and women. In addition, such corporations will be required to provide information about the well-being of employees, retirees and pensioners. For more information on these amendments, see our October 2019 Blakes Bulletin: Mandatory “Say-on-Pay” May Be on the Way in Canada, July 2019 Blakes Bulletin: Additional Diversity Disclosure Required of CBCA Corporations in 2020 and April 2019 Blakes Bulletin: Broad Changes to CBCA Proposed: Directors’ Duties, Additional Disclosure and Annual Say-on-Pay.


The implementation of CEO pay ratio disclosure requirements in major markets such as the United States and the United Kingdom suggests that Canadian securities regulators may re-evaluate whether such disclosures should be required in Canada. CEO pay ratio disclosure requirements may also come about as a result of a political mandate from provincial governments to do so. For instance, it was the Ontario government’s initiative to require disclosure of companies’ approach to the participation of women on boards and in senior management that led to amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices and Form 58-101F1 Corporate Governance Disclosure requiring disclosure relating to gender diversity (see our October 2014 Blakes Bulletin: Just in Time for 2015 Proxy Season: Disclosure Requirements for Gender Diversity, Director Tenure). Current experience suggests that the disclosure of CEO pay ratios is one piece of a broader discussion to potentially expand disclosure requirements related to numerous aspects of an organization’s human capital.

For further information, please contact:

John Tuzyk                   416-863-2918
Tairroyn Childs             416-863-5251

or any other member of our Capital Markets group.