09 December 2016 Portland, Oregon authorizes surtax on executive pay for publicly traded companies On December 7, 2016, the Portland City Council (Council) approved an ordinance that, beginning January 1, 2017, will impose a surtax on certain publicly traded companies that operate in the city and that pay their chief executive officer (CEO) at least 100 times that of their median paid workers. The surtax will be imposed in addition to Portland's business license tax of 2.2% of adjusted net income. Publicly traded companies are required by the US Securities and Exchange Commission (SEC) to report the ratio of compensation of their CEOs to the median compensation of their employees for fiscal years beginning on or after January 1, 2017. A surtax of 10% of the base business license tax liability will be imposed if a company reports a pay ratio of at least 100:1, but less than 250:1 on SEC disclosures. A surtax of 25% of the base business license tax liability will be imposed if a company reports a pay ratio of 250:1 or greater on SEC disclosures. According to the ordinance's impact statement, if a company pays its median worker nationally $50,000 per year, it could pay its chief executive officer up to $4.9 million per year before it would be subject to the 10% surtax of its existing business license tax liability. The chief executive officer could be paid up to $12.4 million per year before paying the higher surtax of 25%. A publicly traded company operating within Portland should review the ratio of its CEO's compensation to the median compensation of its employees and determine whether it will be subject to Portland's new surtax. Opponents of this measure have pointed out that the surtax may face legal challenges because it treats publicly traded companies differently from private companies without a reasonable basis for doing so. In addition, the SEC filing group will most likely differ from a tax filing group, which will create administrative/filing complications. Further, Portland likely will be unable to audit the ratio as filed with the SEC, because the SEC itself has stated it will not audit the disclosure. Moreover, the SEC's calculation methodology for the ratio is extremely flexible. These factors may lead to difficulty with enforcing the provision. Finally, the federal legislation requiring the pay ratio disclosure1 could be repealed after President-elect Donald Trump takes office. Lastly, watch for other cities and states with similar business taxes to take steps to enact similar measures.
Document ID: 2016-2099 | |||||
