California Companies That Pay CEOs Much More Than Workers Could Soon Face Tax Hikes

Written by Alan Pyke

If California companies want to keep paying their CEOs a hundred times better than their workers, they could face higher tax rates. A bill to impose higher tax rates on companies with excessively high CEO-to-worker pay ratios passed its first legislative hurdle on Thursday, advancing out of a state Senate committee on a 5-2 vote.

If SB1372 were to become law, which its authors told the Associated Press is unlikely, the state’s current flat-rate corporate income tax would be replaced by a sliding scale. Most companies would pay an income tax rate ranging from 7 percent to 13 percent depending on the ratio between their top executive’s earnings and what their median employee earned in the same year. Financial companies would face a scale from 9 percent to 15 percent.

The high end of those scales would only affect firms that pay their top executives 400 times better than their median employee. The current fixed rates of 10.84 percent for financial firms and 8.84 percent for others would disappear, meaning companies with CEO-to-worker pay ratios below 100 would see a tax cut from the measure. It’s not clear how many companies would see a tax cut and how many would pay more in California, but nationwide, the ratio between CEO and worker pay has skyrocketed over the past few decades, hitting 273-to-1 in 2012. That data relies upon average pay rather than the median figures that California’s law uses.

The bill’s passage out of committee comes alongside slow-but-ongoing federal efforts to bring transparency and accountability to corporate CEO pay nationwide. A Securities and Exchange Commission rule requiring publicly-owned companies to disclose their pay ratios was finally approved in the fall, but it leaves companies substantial wiggle room in how they calculate the median worker’s compensation. The rule requires only disclosure and features no monetary incentive or penalty to curb pay ratios.

The rapid divergence between executive pay and worker pay might not rankle the public if exorbitant compensation at the top of companies were closely tied to economic performance. But the corporate boards that set executive pay are ineffective at drawing that connection. So-called “performance pay” rules are routinely gamed or ignored, and executives are effectively guaranteed to see their incentive payments regardless of the company’s performance.

Over the same period that the connection between performance and pay has broken down at the top, workers at the bottom have been providing higher and higher productivity levelswithout seeing a commensurate rise in pay.

This post originally appeared on ThinkProgress

Photo Credit: Thinkstock

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martin hogan
martin hogan1 years ago

In the 1940s, there were public information broadcasts on the radio. Many were about the war and the need to share and take responsibility.
One talked of a maximum wage of 412K (around $300K today) as a maximum wage, to take more was to be un-American and unpatriotic; we need to return to these days.
Fibber McGee and other shows are still available online if you want to hear about how Communist the US used to be when it had a society that cared.

Lori Hone
Lori Hone1 years ago

Great idea

Jennie R.
Jennie R.1 years ago

Stockholders are all of us...and there are many companies in my portfolio. I am not able to attend meetings and vote on keeping the CEO's at a reasonable rate. The government needs to do it. Most businessmen and women are good people but without regulation and incentives many business owners will fleece us all and the environment. We need to aggressively stop this new Gilded Age On Steroids.

Steve N.
Steve N.1 years ago

When all of the job providers and workers leave California for a more tax and business friendly state, who is going to be left to provide handouts to the leeches? The liberals and the lazy are cutting their own throats and can't even see it.

Maria Teresa Schollhorn

Well done! Thanke you.

John W.
.1 years ago

Well done California :-)

Robert Hamm
Robert Hamm1 years ago

LOw Taxes are not the answer. Of course compoanies will go whereever they think they will get a better deal. Most states with low Taxes are poor states who give their peiople next to nothing. Their roads are inadequate along with their schools. Most poor states also have the poorest citizens. A great combination you righties are pushing. All the while the CEO gets richer while everyonbe else suffers. You guys jsut keep championing a system like that like there is something good about it.

Anne M.
Anne m.1 years ago

Why is it America is so obsessed with making the rich richer and dumping on everybody else? In fact, most Americans gladly dump on themselves while they worship the ground rich people walk on. Since more than half of the population of the UK would love to get rid of their royal welfare recipients, maybe they should send their royal family to the US so that Americans can curtsy, scrape, and bow before them as they throw their money at them.

Adam C.
Adam C.1 years ago

But what would we do without our bloated plutocratic overlords?

Joseph B.
Joseph B.1 years ago

The plain fact is those that are responsible for CEO wages are the STOCKHOLDERS! Not Government!
No wonder many companies are leaving the great socialist State of kalifornia!

The stockholders should be asked to rein in CEO pay- That is the proper way it is done- Not Government intrusion where it does NOT belong!

Likewise, It is not Government's place to say what is unequal pay or what is-

Government does not exist to guarantee equality of outcomes or who gets paid what!
Government in fact spends way too much (money it doesn't have) So of course the economy flounders and inequality grows-

Instead of the inequality pay issue, examine why companies are leaving States with Democrat Party governors or Democrat controlled Legislatures- It is because of high taxes, Not income inequality!