Oregon’s Portland City Council voted Dec. 7 to impose a surtax on companies that pay their CEOs 100 times or more than their median employee to address growing concerns regarding income inequality, according to a news release.
The surtax will impact companies that conduct business in Portland and are subject to the U.S. Securities and Exchange Commission’s pay ratio disclosure rules. In 2015, the SEC finalized rules requiring companies to disclose the ratio of pay between CEOs and median employees beginning Jan. 1, 2017. The applicable surtax will correlate to the pay ratio disclosed by companies in compliance with the SEC rule as follows:
The concept of using the SEC’s pay ratio data to address income inequality is not new. Previous efforts have been made by federal, state and local lawmakers.
At the federal level, the CEO Accountability and Responsibility Act (H.R. 6242) is pending before the House. The bill, largely similar to Portland’s pay ratio surtax, proposes to increase federal tax rates of companies that report pay ratios greater than 100:1. The bill is sponsored by Rep. Mark DeSaulnier (D-CA), who co-sponsored a similar measure during his term in the California Senate.
Similar measures are being considered or have been considered by state and local lawmakers. Amy Knieriem of Mercer LLC told Bloomberg BNA Dec. 8, “San Francisco is apparently also considering a corporate tax based on CEO pay ratios, but it is not clear if other jurisdictions will follow suit given that similar state initiatives in California, Massachusetts, and Rhode Island didn’t gain traction.”
Despite the recent victory, the future of Portland’s pay ratio surtax is uncertain due to President-elect Donald Trump and his administration’s stance on the Dodd-Frank Act—particularly, the provisions concerning pay ratio disclosure. “Interestingly, the Portland rule could be thwarted if the Trump administration follows through on its pledge to dismantle the Dodd-Frank Act since it piggybacks on the act’s CEO-to-median-employee pay ratio disclosure,” Knieriem said. “But, there is some speculation that Trump’s populist views and concerns about pay inequality may make him sympathetic to keeping the pay ratio rule in place,” she said.
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