A new Toronto-based foundation aims to narrow the gap between the highest and lowest-paid employees in any organization by offering a certification to employers who have more equitable pay scales.

The Wagemark Foundation, formed this July, offers its certification to companies and non-profits who keep the pay differential between their CEO and their lowest paid worker to below 8:1.

"It’s not about putting a limit on what anyone can make. It’s saying if you’re going to pay some people in the organization really, really well, you should bring up the bottom along with them, because ultimately a company is a team. Everyone needs to be motivated in order to perform,'' says Peter MacLeod, executive director of the Wagemark Foundation, said in an interview with CBC’s The Lang O’Leary Exchange.  

At a time when high CEO compensation is controversial among investors and consumers, the idea is that businesses and organizations with a more equitable pay structure will be able to distinguish themselves in the marketplace with the Wagemark logo.

"I think it’s very difficult these days to turn on a television or open the pages of a newspaper and not see some kind of article talking about growing income inequality in our society.  Frequently those articles point to the really extraordinary runup in executive compensation that we’ve seen, particularly in the U.S.," MacLeod said.

MacLeod said the 8:1 ratio is an international standard that is in fact, close to the norm for many organizations. Small and mid-size companies, professional services firms, educational institutions, hospitals, other nonprofits and government agencies already pay within this range, MacLeod said.

So far about 20 organizations have signed up for Wagemark, most of them small businesses.

Among the early converts:

  • Evergreen, an environmental charity.
  • Impact Mobile, a mobile software company.
  • OxiBrite, a manufacturer of detergents.
  • UrbanSpace, a property development group.
  • Bellwoods Brewery.

MacLeod argues there are strong business and economic reasons for a low pay ratio. A pay structure in which the top executive earns several hundred times as much as the lowest paid worker undermines employee motivation and reduces productivity, he said.

"It’s not only about what compensation does for that person at the top. It’s about what it does for morale at large," he said.

"There’s some really interesting research coming out that not only correlates lower-paid multiples in companies to improved employee retention, improved workplace morale, but also in knowledge-intensive businesses to greater innovation, more competitiveness."

A more equitable pay structure is a boon to innovation, he added, empowering workers and fostering creativity.

In the fall, the Wagemark Foundation plans a campaign among some of Canada’s largest firms. Certification costs $200 per year and can be authorized by any Chartered Accountant.

Top executive pay has surged since the mid 1990s, when securities regulators mandated the publication of CEO pay.  According to a recent study, the CEOs of the largest U.S. companies made on average 354 times as much as the average worker.  In Canada that figure is 189 times the average Canadian wage.