Portland to Impose Tax for High CEO Compensation

by Victoria Bartow | January 11, 2017

On December 7, 2016, the Portland City Council approved a tax on certain companies that pay their CEOs 100 times or more what their average employee makes. This surtax is the first in the nation of its kind and its purpose, per the ordinance, is to address income equality. Note that the surtax, added to Portland’s Business License Tax, will only apply to publically traded companies subject to SEC disclosure and reporting requirements. Starting tax year 2017, the SEC requires public companies to disclose the ratio of the compensation of its CEO to the median compensation of its employees. Companies subject to the law must pay an additional 10% in tax. This tax rises to 25% on companies where CEO’s make 250 times the amount paid to the median employee.

As one can imagine, the ordinance is highly controversial. Portland’s Revenue Bureau identified more than 500 publically-traded companies that could be subject to the tax depending on their compensation ratios. The surtax is estimated to generate $2.5 to $3.5 million for the City.[1]

While this tax will not be imposed on most Portland employers, it is important to consider as it represents a novel approach to income inequality and the private sectors role, imposed by governments, on addressing it. It is not unreasonable to contemplate that it could be expanded in the future to other businesses. In the next few years, stakeholders will be evaluating the tax and its impacts on its purported goal. We will be watching it closely.

[1] City of Portland, News Release: Portland City Council Combats High CEO Pay, 12/7/16, available at https://www.portlandoregon.gov/novick/article/620318?archive=yes