March 20th, 2014

Charities are powerhouses of Canada’s economy

March 20th, 2014

This article first appeared in the Toronto Star on 2014/03/03 

In relative terms, Canada’s non-profit and voluntary sector is the second largest in the world, with an estimated 170,000 registered charities and non-profits. More than 2 million people are employed by these organizations and contribute $176 billion in income and account for more than 8 per cent of Canada’s GDP.

Many of Canada’s largest institutions, such as universities and hospitals are in fact structured as charities with thousands of employees and operating budgets well into the millions, if not billions, of dollars. For example, the largest university in Canada, the University of Toronto, is a charity with more than 6,000 staff and 11,500 faculty members, and an annual budget of nearly $2 billion, contributing $15.7 billion to the economy every year.

All this is to say that conventional perceptions of the charitable sector tend to focus on more humble and sentimental activities, like feeding the homeless, rather than triggering reflections of billion-dollar companies in research and development. We also typically speak about the charitable sector as a whole, rather than in distinguished groupings like startups, small- and medium-sized enterprises (SME), or large corporations, as we do in the for-profit sector.

These popular misconceptions and biases have left the sector exposed to sweeping discriminations and prejudice in both the policy domain and public perception. For example, in 2009 Bill C-470 was introduced to Parliament “to revoke the registration of a charitable organization … if the annual compensation it pays to any single executive or employee exceeds $250,000.”

This bill actually made it to a third reading, with 280 votes in favour and only three against. The only reason the bill did not progress any further was because of the non-confidence vote that led to the 2011 election, so it died on the order paper with the Senate and no one has made an attempt to resurrect it since.

This, however, did not deter the New Democratic Party from proposing a new provincial bill last fall to set the cap of public sector CEOs at $418,000 in Ontario, which, again, would include public charities such as hospitals and universities. In exchange for supporting the budget, the Liberal government has agreed to introduce legislation allowing it to limit compensation of the public sector, which will set a strong precedent for the rest of the charitable sector.

Now, ignoring for a moment whether you are for or against the proposed bill, if we parse out the proposition, the questions we should ask are why are we setting a cap on public sector CEOs at all, and why at $418,000 (and not $418,001)?

The common discourse usually goes something like this: charitable sector CEOs are paid for by public dollars and therefore should maximize that money for the public good and not personal gain. Except that if we can all agree that salary is, at least loosely, connected to performance, and you are a charity contributing millions, if not billions, of dollars to the Canadian economy each year, do we really want to limit the quality of the executive candidates by restricting their compensation? Charities, also, are not only subsidized by public dollars, but often generate millions in revenues and reinvest this money into the organization instead of distributing it to shareholders as a for-profit company would.

The rationale for a $418,000 cap is based on the Ontario premier’s salary, which is half that amount. As NDP leader Andrea Horwath has said, “If the person charged with leading the government of this province can get by on $209,000 a year, then public sector executives should be able to get by with a paycheque twice as big.” Why does the premier’s salary have any bearing on what the CEO of a public charity makes, whether it is doubled, tripled or halved? This type of thinking is symptomatic of the often arbitrary and unempirical perspective that looms over the charitable sector as a whole.

Also, if we are going to discuss salaries of public sector employees, we should invariably include the private sector, as they are also recipients of public dollars. For example, in 2012, Steven Williams, the CEO of Suncor, brought home nearly $12 million in compensation. According to the International Monetary Fund study, Canada used $26 billion to subsidize energy in 2011. Specifically, Suncor was one of the top recipients of federal funding from Natural Resources Canada with nearly $134 million in subsidies since 2007 for biofuels production and wind energy projects.

Should we then cap private sector employees’ salaries as well? To be fair, how about five times instead of double the premier’s salary, considering they receive less public dollars? But that would only amount to a little over $1 million a year in earnings, so we would actually have to increase it by 56 times just to maintain the status quo.

Perhaps it would be best to increase the salaries of charitable sector CEOs by 56 times to level the playing field, so we do not lose them to the private sector, a topic Dan Pallotta has written much about. Another alternative gaining a lot of traction is to earmark executive salaries within eight times the average of the bottom 10 per cent of wages, which was recently written about in the Star by Peter MacLeod, co-chair of the Wagemark Foundation. This has potential, but it is the private sector that needs this more than charities.

Capping one sector and not the other is difficult to justify considering organizations like the University of Toronto and Suncor both manage a similar number of employees and contribute billions to the economy. It raises questions like, what is worth more to Canada, the country’s largest energy company or its largest post-secondary institution? Which is not really fair, as it compares apples and oranges. The simple fact is that both organizations need the best executives to be successful.

Whether or not you are for or against salary caps, compensation should be based on what the job entails, the level of difficulty, and what qualifications you need, not some arcane notion about the morality of the sector in which the leaders are situated. If we are going to have a sensible conversation about executive salaries in this country, we must rid ourselves of whatever lingering misconceptions we hold of charities and acknowledge the sector for the economic powerhouse it is in Canada.

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