Today, Portland, Oregon, became the first jurisdiction in the United States to use the tax code to address the phenomenon of outrageous CEO pay. The City Council passed an ordinance, sponsored by City Commissioner Steve Novick, that requires publicly traded corporations to pay a surtax if they pay their CEO more than 100 times their median worker.It looks like the levy would run through the business license tax for firms that operate in Portland and who consequently would have to get a business license. The Tax Foundation comments:
Whatever the ratios turn out to be, however, the Portland ordinance, if approved, might be little more than window dressing—more of a gesture than a policy prescription. Maybe CEO pay is too high and maybe it isn’t, but a Fortune 500 corporation is unlikely to renegotiate its chief executive’s compensation package to avoid an additional tax hit of a few thousand dollars in Portland, Oregon.So a surtax that raises little in revenue but makes a statement about the weirdness of Portland. I prefer Darth Vader with flaming bagpipes on a unicycle.
And even if somehow the tax did lead some company (perhaps a Portland-based business, with much higher liability in the city) to reconsider executive compensation packages, there is very little reason to believe that any of the savings would accrue to employees. Like it or not, businesses are not benevolent societies, and it would be curious if companies with allegedly inequitable compensation schemes would, having made a savings on executive compensation, simply gift that amount to employees in the form of pay raises. Rather, any savings would likely accrue to shareholders or perhaps be reinvested in the company.
Assuming there are any savings at all. Corporations presumably seek to avoid paying their CEOs more than they are worth to the company. They may get this wrong—perhaps even frequently. If they thought that the company would do just as well with a lesser-compensated chief executive, though, they would likely go that route, and if their initial judgment was correct, a company that actually feels compelled, for tax purposes, to curtail executive compensation would see a decline in its fortunes, with attending losses for shareholders and wage earners alike.
HT: Glenn Boyle