A New City "Surcharge" On Exorbitant CEO Pay Could Raise Up To $3.5 Million

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Companies operating in Portland that pay their CEOs exorbitant sums will get slapped on the wrist next year, if Commissioner Steve Novick has his way.

For months, Novick's been mulling a "surtax" on any publicly traded companies operating within city limits who pay their CEOs at least 100 times the median salary of other employees. Under a proposal he's going to float later this month, those companies would be charged an additional 10 percent on top of the business license tax they pay to operate in city limits. Companies that pay CEOs at least 250 times the median pay of employees would be taxed 25 percent.

It's not completely clear what the tax could haul in. The federal Securities and Exchange Commission last year decided to require publicly traded companies to reveal compensation ratios of their CEO compared to employees, but that won't begin until next year.

That hasn't stopped city number crunchers from trying to figure out how lucrative it could be. Early estimates suggest the tax could bring in between $2.5 million and $3.5 million each year from some of the 545 publicly traded companies that have business in Portland. Here's an analysis of a possible "Executive Pay Ratio Business Surtax" the city's revenue office worked up in April.

Novick says he's got two motivations here—and swears neither of them have roots in a run-off election for his seat against bookstore owner Chloe Eudaly in November. First, Novick says he wants to address the nation's growing wealth inequality. If Portland and other jurisdictions begin penalizing companies for exorbitant CEO pay, he says, it could be "an inducement to pay your workers better."

And Novick's trying to find new revenue at a time when the city's budget forecasters are warning record tax receipts won't last forever. As the Mercury's reported, the city has already built a $3.5 million hole into next year's budget by agreeing to pony up $15 million for homeless services, when only $11.5 million in funding had been identified.

"At some point the rapid increase in tax revenue is going to run out of steam," Novick says. "Any way to address that that’s plausible I think is a good idea."

As Willamette Week pointed out when first reporting on Novick's proposal, it's likely to have support from voters who might be leaning toward his opponent, the ultra-lefty Eudaly. Novick himself says "it's gonna be popular."

What remains unclear is how popular it is among Novick's city council colleagues. The council is slated to take up the proposal in a September 22 work session. Novick notes that Mayor Charlie Hales and pushed a more general increase in the city's business license tax earlier this year. Novick and others opposed that proposal, and it was ultimately shot down. Commissioner Amanda Fritz never took a position.

The notion of taxing for ridiculously high salaries isn't Novick's. In the last two years, Rhode Island and California have both taken up proposal to penalize companies with enormous CEO-to-employee pay ratios—either through taxation or through favoring other companies in contracts.