“…the city of Portland, Oregon, recently passed an ordinance authorizing a surtax to the city’s business license tax for public companies doing business in Portland based on their pay ratio disclosure.
In addition to the current 2.2% business license tax, a surtax of 10% of base tax liability will be imposed once the disclosure is effective if a company reports a pay ratio of at least 100:1 but less than 250:1. Companies with pay ratios exceeding 250:1 will face a surtax of 25%.
There are currently at least 545 publicly traded companies subject to this tax in Portland, with collective revenue of $17.9 million. The new surtax is projected to bring in annual tax revenue of between $2.5 to $3.5 million, and will be used to partly fund a city office devoted to homeless services.”
It has also been reported that attempts to explore or implement new taxes tied to CEO pay ratio, or conversely to provide incentives to companies with lower pay ratios, have also been proposed or considered in states such as California, Rhode Island and Massachusetts. It appears the CEO pay ratio disclosure is on the local radars (state and city jurisdiction level) and it could be only a matter of time before more of them follow the path of Portland in implementing surtaxes tied to the disclosure.
As companies continue their conversations around these disclosures, it may be prudent to include some of the peripheral and unexpected side affects that could result from a higher than desired pay ratio. In the past we’ve discussed concerns around the optics of the ratio to shareholders and internal employees, but now it looks like the tax offices are watching this matter closely as well. What other peripheral effects will be tied to the pay ratio disclosure? Will it be repealed entirely? These are all questions that will begin to take shape in the coming months. Don’t forget to renew your NASPP membership so that you stay current on these developments and more in the New Year.
-Jenn