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Portland approves CEO-employee pay-ratio surtax on publicly traded companies

By Pamela Wolf, J.D.

In a move designed to chip away at income inequity, the Portland, Oregon, City Council on December 7 passed an ordinance that will impose a surcharge on publicly traded companies that provided their CEOs compensation that is greater than 100 times the compensation of the companies’ median workers. The measure, sponsored by Commissioner Steve Novick, was approved by a 3-1 vote in the Council’s afternoon session. The surcharge increases where the ratio is greater than 250:1.

The ordinance (item 1368 on the Agenda) amends Portland Code Section 7.02.500. In addition to the usual tax of 2.2 percent of adjusted net income paid by businesses in Portland, the ordinance adds a pay-ratio surtax applicable to publicly traded companies that are subject to U.S. Securities and Exchange Commission pay ratio reporting requirements. The pay ratio tax is based upon the ratio between the CEO’s and median employees’ compensation.

For tax years beginning on or after January 1, 2017, a surtax of 10 percent of base tax liability will be imposed if a company reports a pay ratio of at least 100 to 1 but less than 250 to 1 on its SEC disclosures. The surtax increases to 25 percent for a company that reports a pay ratio of 250 to 1 or greater.

Among the findings stated in the preamble to the ordinance is this one: “The explosion of chief executive officer pay is a major contributor to growing inequality. According to [Thomas Piketty in his book Capital in the Twenty-First Century], the increase in inequality in the United States after 1980 ‘was largely the result of an unprecedented increase in wage inequality and in particular the emergence of extremely high remunerations at the summit of the wage hierarchy, particularly among managers of large firms.’ Piketty’s research shows that 60 to 70 percent people in the top 0.1 percent of income in the United States are these very highly paid executives.”