time directors should devote to their duties and what the appropriate remuneration should be. 2. executive compensation i have already publicly expressed my views on the trend toward excessive executive compensation. as i argued earlier this month, i can find nothing in economic theory to justify the levels of executive compensation that are widely prevalent today. i believe that corrective action - taken voluntarily - is not only overdue but also morally sound. this evening, i would like to focus on the effects of public policy on executive compensation. as you know, in 1993, the irs ruled that the maximum tax - deductible salary a company can pay an employee is $ 1 million per year. compensation above $ 1 million has to be “ performance - related ” to be considered a tax - deductible expense. this change in public policy gave firms that wanted to minimize taxes the incentive to introduce performance - related pay structures for executives earning above $ 1 million a year. the policy change is a key reason that stock options have become the most prevalent performance - related structure for executive compensation. option - based executive compensation raises a number of issues. for example, one feature of the 1993 irs ruling is that the $ 1 million salary cap for tax deductibility is nominal and not indexed. this means that as the average total compensation for executives rises over time, the incentive to use stock options increases. another issue stems from the fact that stock options are non - transferable. therefore, an increasingly large fraction of an executive's compensation in the form of stock options represents a non - diversified risk. moreover, if the firm goes bankrupt, the options become worthless at the same time that the executive ’ s job is lost. as a result, firms may have to increase the amount of options they offer an executive to offset the increased riskiness of this form of compensation. from my perspective, a more neutral tax policy toward executive compensation would reduce the reliance on stock options and not penalize firms if they opted instead to use other forms of contingentpay mechanisms. a reconsideration of stock options is already under way. clearly, there is room for changing the incentives that have been driven by tax policy. for me, what is key is that firms have the flexibility to structure new types of incentive compensation and that public policy be responsive to these initiatives. a deeper issue, in my view, relates to dividends. it is true that dividend payout ratios - dividends divided by earnings - have fallen over time

interest rates and a depreciation of the canadian dollar. obviously, more targeted labour market policies lie beyond the bank ’ s purview. still, it makes sense for policymakers to address impediments that make it hard for workers to be matched up with those half - million job vacancies. there may be new ways of helping people deal with the risks involved in relocation, or overcome regional barriers to job matching. for example, there may be areas where we could make it easier for skilled workers and professionals to recertify to qualify for a job in a different province. we may also be able to learn from international experience in terms of improving our educational, training and retraining programs. i mentioned earlier that, despite low unemployment, people express a sense of dissatisfaction and unease about their future. it is possible that the distribution of income is contributing to this. total labour income as a share of the canadian economy began to trend downward nearly 30 years ago and has remained in a lower range for the past 10 – 15 years. opportunities for globalization of supply chains and the steady increase in automation technology have no doubt reduced employee bargaining power over time, not to mention declining union membership. 3 / 5 bis central bankers'speeches bearing in mind that globalization and automation also generate economic growth that benefits everyone, it is clear that there is no simple solution to this. however, it is a useful metric to track when considering alternative policy ideas. yesterday ’ s decision all that said, the canadian labour market has certainly been important to the economy ’ s resilience. its strength has helped support the growth in incomes and household consumption that we have seen. however, it is just one factor that the bank ’ s governing council looks at when we sit down to take our monetary policy decisions. let me turn now to yesterday ’ s announcement. it is important that we put recent developments into proper context. business investment has been falling short of expectations in canada for the past three years. six months ago, we were seeing signs that the us – china trade war was beginning to affect canadian exports and investment even further. in october, we pointed to canada ’ s two - track economy, where soft exports and investment were being offset by a recovering housing sector, a strong labour market and solid consumer spending. but we were concerned that the effects of the trade war could eventually tilt the balance of risks against us. with the economy operating very close to its potential, the unemployment rate near historic lows and inflation