CEO Pay Targeted in San Francisco, Rhode Island

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By Joyce E. Cutler

San Francisco and Rhode Island are aiming business tax surcharges at companies with chief executive officers whose compensation is 100 times greater than their median worker’s pay.

The legislation builds on the country’s first such law, in Portland, Ore., passed last month. Portland will charge companies a 10 percent surtax on the city’s business license tax for CEO pay that is 100 times greater than the median worker pay. The intent in all three bills is to target the growing gap between CEO and worker pay.

“It is clear today that we cannot rely on Washington and Congress to take leadership on the growing wealth and income gap, and that with a Cabinet that is more white, more male and made up of more billionaires than any presidential cabinet in recent history, we cannot rely on the federal government,” San Francisco Supervisor Jane Kim said in proposing legislation.

Publicly Traded Companies

San Francisco’s yet-undrafted bill, introduced Jan. 24, would target CEO pay at publicly traded companies that file compensation disclosure statements with the Securities and Exchange Commission, including Twitter Inc., Salesforce.com Inc., Zynga Inc. and Gap Inc., all based in the city.

Rhode Island’s H. 5141, introduced Jan. 18, likewise builds on Portland’s law, charging companies a 10 percent surtax for CEO pay that is 100 times greater than median worker pay. The state would go a step further than Portland and assess a 25 percent surtax for CEO pay that is 250 times greater.

“Nobody needs to receive more than what their employee would earn in a century,” Rep. Aaron Regunberg (D) said in a statement introducing H. 5141. “And if a corporation doesn’t want to pay the surtax, they don’t need to—they can simply lower their outrageous CEO compensation, or increase their employees’ salaries.”

Barn Burner for CEO Pay?

Federal-level tax cuts to the wealthy and deep cuts to spending will “put states and cities under pressure to do innovative things they may not have considered before,” Sarah Anderson, Institute for Policy Studies global economy project director advising localities on the equity measure, said Jan. 25.

Outrage over CEO pay is high and “cuts across the political spectrum,” Anderson told Bloomberg BNA. “I think it’s really going to take off.”

Average worker compensation has grown 10.3 percent since 1978, while CEO compensation grew 941 percent, the Rhode Island bill said.

Economic Policy Institute data shows the nation’s largest corporations paid CEOs an average $15.5 million in 2015, or 276 times the annual worker's pay.

San Francisco will take its time on what amount triggers the surcharge on the business license tax and ensure the bill is fiscally sound, Ivy Lee, Kim’s chief of staff, said Jan. 25.

“We also want to find the sweet spot where we are minimizing the negative impact but maxing the revenue and the positives,” starting with a ratio of maybe 25-to-1 or 100-to-1, Lee told Bloomberg BNA.

Building on SEC Rules

Kim and Supervisor Hillary Ronen asked the City Attorney’s Office to draft language based in part on the SEC rule for companies to disclose starting this year the ratio of what CEOs are paid compared with the median worker’s pay.

“This new rule offers local and state governments, as well as Congress, the opportunity to develop policies that address the growing gap between the ultra rich and the rest of us,” Kim said during the Board of Supervisors weekly meeting.

The Center on Executive Compensation, whose members include E.I. du Pont de Nemours & Co., Eli Lilly & Co. and HP Inc., was among the organizations that opposed the SEC’s final pay-ratio rule as overly burdensome and impractical. They didn’t immediately respond to a request for comment.

To contact the reporter on this story: Joyce E. Cutler in San Francisco at JCutler@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of H. 5141 is available at http://src.bna.com/lG3.

The SEC rule is at https://www.sec.gov/news/pressrelease/2015-160.html.

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