Portland, Oregon introduces CEO pay levy to cut income inequality


The tax will come into force at the same time as a new ruling by the Securities and Exchange Commission mandates executive pay gap reporting for public companies nationwide.  
 
Portland in Oregon has become the first US city to levy a surcharge on public companies whose chief executives earn more than 100 times the median pay of their rank-and-file workers.
 
As a result of the new regulations, organisations employing CEOs that breach the threshold will be required to pay an extra 10% on top of Portland’s existing 2.2% business income tax. Top bosses that make 250 times more than their average employee will have to pay an additional 25%.
 
The tax will take effect next year after a new ruling by the Securities and Exchange Commission comes into force mandating that public companies nationwide calculate and disclose how CEOs’ compensation compares with their workforce’s median pay. Officials estimate that the move will generate between $2.5 and $3.5 million per year for the city’s general fund, which pays for basic public services such as housing, police and fire-fighters.
 
But local businesses are unhappy with it. Sandra McDonough, president and CEO of the Portland Business Alliance, a local Chambers of Commerce that represents 1,850 firms, warned that the tax would have “virtually no impact” on addressing income inequality.
 
She told the New York Times: “We see it as an empty gesture. We think they’d be far better off trying to work with business leaders to create more jobs that will lift people up and improve incomes.”
 
But Charlie Hales, Portland’s mayor, who is a supporter of the tax, responded: “Income equality is real. It is a national problem and the federal government isn’t doing anything about it. We have a habit of trying things in Portland. Maybe they’re not perfect at the first iteration, but local action replicated around the country can start to make a difference.”
 
Criticism of CEO pay has mounted over recent years in line with increased compensation levels. In 2015, the median renumeration of the 200 highest-paid executives at US public companies was $19.3 million compared with $9.6 million five years earlier.
 
A 2014 study by liberal advocacy group the Economic Policy Institute also revealed that CEO pay when compared with the earnings of the average worker had surged from a multiple of 20 in 1965 to nearly 300 in 2013.