Portland has just opened up a new front in the struggle against inequality. On December 7, local officials voted to slap a surtax on corporations that pay their chief executive officers more than 100 times what they pay their typical workers.
The Portland move will be the nation’s first tax penalty on corporations with extreme CEO-worker pay gaps. But it’s unlikely to be the last. Much like the Fight for $15, this bold reform could well spread like wildfire.
Indeed, we may look back at the Oregon vote as the dawn of a new “pay ratio politics.” Thanks to a new Securities and Exchange Commission regulation, publicly held corporations will this year have to start calculating the ratio between their CEO and median worker pay. The first of these ratios will go public in early 2018.
These federally mandated pay ratio disclosures will make it easy for states and cities to adopt Portland-style surtaxes—if they have the political will to do so.
In Portland, local officials had that will, and their deliberations showed just how broad the potential political support may be for leveraging the public purse against corporate pay practices that increase inequality. Each council member who voted for the surtax did so for slightly different reasons.
For the bill’s champion, Steve Novick, this was all about striking a blow against our nation’s skyrocketing inequality. “CEO pay is not just an eye-catching example of, but a major cause of, extreme economic inequality,” he said in a statement after the council vote. “Extreme economic inequality is—next to global warming—the biggest problem we have in our society.”
As renowned global-inequality expert and former World Bank lead economist Branko Milanović put it, the Portland plan seems to be “the first tax that targets inequality as such.” In an interview with The Guardian, Milanović praised the city’s surtax for “treat[ing] inequality as having a negative externality like taxing carbon emissions.”
Portland Mayor Charlie Hales brought a responsible business perspective to the debate. In a previous job at an employee-owned engineering firm, the mayor had experienced the bottom-line benefits of a narrow CEO-worker pay ratio. “Everyone worked a little harder because ‘your success was my success.’ And that egalitarian culture led to a strong work ethic that drove the corporation to success,” Hales noted at a hearing on Portland’s pay ratio proposal.
Doug Smith, a former McKinsey partner, told the Portland City Council that he had seen the exact opposite effects at corporations with wide pay gaps. “Instead of building a real economy beneficial to all, these unethical pay practices spread outsourcing, offshoring, tax avoidance, downsizing and the substitution of good-paying permanent jobs with temporary, precarious employment,” said Smith, who currently directs the Sulzberger Executive Leadership Program at Columbia University, in a statement.