Bloomberg: Income inequality battle brewing at state level

In response to growing concerns over income inequality, some states are proposing legislation designed to penalize companies using pay ratio data disclosed pursuant to the Securities and Exchange Commission’s pay ratio disclosure rule.

Pay Ratio

The SEC’s pay ratio disclosure rule requires public companies to report the ratio of pay between the median employee and the principal executive officer.  Companies must report their pay ratio in their 2018 proxy statements using 2017 compensation data.

The concept of using pay ratio data to address income inequality isn’t new. Portland, Oregon, adopted a local ordinance that imposes a surtax, which correlates to the pay ratio disclosed by companies in compliance with the SEC’s rule. The applicable surtax is:

  • 10 percent if the pay ratio is equal to or more than 100:1, but less than 250:1; and
  • 25 percent if the pay ratio is more than 250:1.

See related story, Portland Imposes Pay Ratio Surtax to Combat Income Inequality, Others to Follow?

Proposed Legislation

Five states also have proposed legislation that will impose a tax or flat fee based on pay ratio. The legislation introduced in Minnesota (HF 65) and Rhode Island (H. 5141) proposes to adopt a surtax that is largely similar to Portland’s pay ratio surtax. Additional efforts include:

-Illinois (HB3335) proposes to impose an annual fee on publicly traded companies based on the SEC’s pay ratio disclosure rule. Companies would be subject to the following fees:

  • $1,500 if the pay ratio is more than 100:1, but less than 250:1; and
  • $2,500 if the pay ratio is more than 250:1.

-Connecticut (HB 6373) proposes to amend the current corporate income tax structure based on pay ratio.  The proposed tax rate is:

  • 5 percent if the pay ratio is equal to or less than 25:1;
  • 7.5 percent if the pay ratio is more than 25:1, but equal to or less than 100:1;
  • 10 percent if the pay ratio is more than 100:1, but equal to or less than 250:1; and
  • 25 percent if the pay ratio is more than 250:1.

-Massachusetts (S. 1555) proposes to impose a 2 percent surtax on publicly traded companies that report a pay ratio that is more than 100:1.  Interestingly, the legislation introduces a Massachusetts-only pay ratio calculation that is independent of the SEC calculation.

There has been significant buzz regarding the future of the Dodd-Frank Wall Street Reform and Consumer Protection Act, including the pay ratio provisions.  Despite lingering questions regarding the pay ratio, executive compensation experts believe that we will continue to see similar efforts at the state and local levels.  Steve Seelig of Willis Towers Watson, told Bloomberg BNA March 1, “When disclosure of the CEO Pay Ratio disclosure was first made law in Dodd-Frank, the focus was not on shareholder reaction but rather on what would be the next shoe to drop from legislators and regulators” and that “this is because shareholders uniformly have expressed indifference to seeing a pay ratio disclosure that does not provide additional insight on how CEO’s compensation is connected to corporate success.”  Seelig added, “Don’t be surprised to see other efforts in this area, perhaps in how state and local governments interact with government contractors who might have a ratio that is seen as too high.”

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SHARON H. LEE

Sharon H. Lee is a senior legal editor for Bloomberg BNA’s Benefits Practice Resource Center. She earned her J.D. from Syracuse University College of Law, where she was an editor for various publications, and her Bachelor of Science from George Mason University. Prior to joining Bloomberg BNA, she practiced law in New York City specializing in matters involving ERISA plans. Sharon can be reached at slee2@bna.com

Youth Action:

How is Resist365.org going to take on inequality?

KW: The communities mostly affected by the growing divide between the rich and poor don’t often hear about how they can play a role in changing it. We know the rich keep getting richer, but we don’t know the ways we can fight back. At resist365 we’re helping newly inspired activists fight with tools, with facts. We’re helping them get together with similarly outraged like-minded people who want to take action.

At our best, we’re recruiters for the movement to take on inequality. We’re working towards a more fair and just society, and we know we won’t get there without involvement from young people.

We’re hopeful these young people won’t just engage on Instagram, but in the ballot box and on the streets and in the opinion pages of their local newspapers as well. We want them to run for local office and to hold the elected officials who are currently in office accountable.

Inequality.org: Why create a new platform rather than just use existing streams?

KW: As a young black activist, I didn’t see a platform that talked directly to my friends and me about broad-ranging issues. Plenty of organizations do a good job on individual issues like race or gender, but we’re not just talking about race.

We’re talking about taxes. We’re talking about the wealthy getting a huge tax break while regular folks lose their public services. We’re talking about climate change and militarism. We’re looking across the spectrum.

We’re working towards a more fair and just society, and we know we won’t get there without involvement from young people.

We want to talk to people in basic terms and phrasing that’s accessible and relatable. A lot of the stuff I see is filled with jargon, and the people we’re trying to reach feel left out because they’re new to these issues. We’re using language that people can understand and connect with, and that’s not common in this space.

Inequality.org: Who else is behind Resist365?

KW: A group of my friends who were all politically engaged came up with the idea. I’m helping to head it up and we’ve gotten strong partnerships from groups like the Institute for Policy Studies and #WeVote. This project takes up a lot of my free time, and I’ve put a lot of heart and soul.

We also work with You Gon Get This News Mane, a daily news round-up looking to connect issues from around the world to millennials of color. We’re now looking to add more partners.

Inequality.org: What is success going to look like with this project?

KW: We’re utilizing social media — Facebook, Twitter, Instagram. In just our first week we’ve been doubling our Instagram followers every couple days. We’re hoping to keep building on this momentum.

We’re also hoping to target politically engaged young people — the under-40 crowd and even the under-20 crowd who maybe have never voted before. We’ve got our eyes on the future, looking at engaging my peers in the rising generation. We’re not going away. We call this Resist365 because we know we can’t afford to get distracted.

Don’t miss Resist365’s new website, Instagram, and Facebook.