City of Portland Adopts Surtax Linked to Pay Ratio

Executive Pay Plan Design

In a national first, all publicly traded companies subject to SEC reporting requirements which do business in the City of Portland, Oregon, will be subject to a surcharge on the City's business income tax based on the company's CEO-to-median worker pay ratio.  The measure was adopted by the Portland City Council on December 7 in a 3-to-1 vote and will subject an estimated 540 publicly traded companies to the surtax.  Democrat City Commissioner Steve Novick, who spearheaded the initiative, characterized the measure as a tax on income inequality, noting that he hopes that the tax might discourage companies—in and outside of Portland—from paying their CEOs what he considers disproportionate to other employees.  Under the newly adopted surtax, companies with a pay ratio of at least 100-to-1 will be subject to an additional 10 percent tax surcharge.  Companies with a pay ratio exceeding 250-to-1 will see a 25 percent tax surcharge.  In practice, a company with a 300-to-1 pay ratio which has a $1,000,000 Portland City tax bill will be subject to an additional $250,000 in taxes under the pay ratio tax measure.  Although Portland is one of the most progressive cities in the country, the successful push for the pay ratio-based tax could be duplicated in other jurisdictions, much as state and local legislation has been used to promote paid leave legislation.