This recent memo from Andrews Kurth: "CEO Pay Ratio Disclosure: State and Local Governments May Add to the Burden" provides an overview of existing, pending and proposed local (non-federal) legislation that will subject public companies to taxes and other charges based on their disclosed CEO or other internal pay ratios.
Companies should be aware of these local developments, and determine whether and how they may apply to them:
- A Portland, OR ordinance imposes a surtax of 10% on top of Portland's business income tax if the CEO pay ratio is at least 100:1, with the surtax increasing to 25% if the ratio is greater than 250:1.
- Both Minnesota and Rhode Island have pending legislation that would impose surtaxes on state business income tax based on CEO pay ratios at rates similar to those imposed by Portland.
- Connecticut has proposed to tie the corporate tax rate to the pay ratio of the highest paid employee (not necessarily the CEO) to the median employee, as follows: (i) 5% for ratios of 25:1 or less, (ii) 7.5% for pay ratios above 25:1 and up to and including 100:1, (iii) 10% for pay ratios above 100:1 and up to and including 250:1, and (iv) 25% for pay ratios above 250:1.
- Illinois' proposed “Business Compensation Equity Fee Act” would impose an annual fee of (i) $1,500 if the CEO pay ratio is at least 100:1 but less than 250:1, and (ii) $2,500 if the ratio is greater than 250:1.
- Massachusetts has proposed to apply an additional 2% state income tax on companies with a pay ratio based on the highest paid employee (not necessarily the CEO) that exceeds 100:1.
Some of the legislation is keyed to the Dodd-Frank mandate (and thus relies on the survival of the Dodd-Frank rule to become/remain effective), and some appears to operate independently of Dodd-Frank.