Furthermore, Martin reasons that because stock markets are “expectations mar- kets”, the price of a company’s shares is based not on the performance of the com- pany in the past, but on what investors expect the performance of the company to be in the future. [...] Despite the recession, the public outrage, the criticism of political leaders and the devastating analyses of key business thinkers, the practice of compensating Canadian CEOs has not changed perceptibly since the global economic meltdown. [...] While the intended effect may have been to have a ripple effect through the financial services industry in particular and busi- ness in the U. S. in general, the actual effect has been to induce large corporations to pay the public money back in an attempt to avoid the salary and bonus restrictions imposed as bailout conditions. [...] If the price of the shares goes up above the pre-de- termined price, the CEO buys the stock at that price and sells it at the market price, pocketing the difference. [...] The trick here is that Canadian tax law treats the income represented by the difference between the exercise price and the market value as a capital gain, which in Canada is taxed at half the rate of ordinary wage and salary income.
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