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Portland Pay Ratio Surtax Attempts to Address Income Disparities

December 9, 2016

By Liani J. Reeves

In the latest move to maintain Portland’s reputation as a city of “firsts,” the Portland City Council voted 3-1 on Wednesday to pass a first-of-its-kind measure that attempts to address income disparity.  The ordinance creates a new pay ratio surtax for publicly traded companies subject to U.S. Securities and Exchange Commission (SEC) disclosure and reporting requirements that do business in the City.  It applies to companies that report a ratio of compensation of its chief executive officer to its median worker of 100:1 or higher under the SEC’s Pay Ratio Disclosure Rule.  This is in addition to the 2.2 percent tax already imposed by the City of Portland Business License Law.  It is estimated that more than 500 companies doing business in Portland may be impacted.
 
The ordinance will go into effect for tax years beginning on or after January 1, 2017 and will impose a surtax of:
 
  • 10 percent of base tax liability if a company reports a pay ratio of at least 100:1 but less than 250:1; or
  • 25 percent of base tax liability if a company reports a pay ratio of 250:1 or greater.
 
In approving the tax, the Council cited the increase in wealth inequality and the “explosion of chief executive officer pay” as compared to average workers’ compensation growth as reasons for the ordinance.
 
Impact to Employers:  The surtax will be assessed based on 2017 tax year reporting to the SEC under the Pay Ratio Disclosure Rule, which was mandated by the Dodd-Frank Wall Street Reform and Consumer Protect Act.  The rule was adopted in August 2015 and takes effect in January 2017.  Companies have flexibility in meeting the rule’s requirements and the rule allows for discretion in calculating the ratios.
 
Link to Ordinance:  https://www.portlandoregon.gov/auditor/article/596300
 
Bullard Law’s blog, The Bullard Edge, will cover this issue in more detail next week.  Please look out for it.
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