San Francisco, Rhode Island Unveil Newest Pay Ratio Surtax Measures

Executive Pay Legislation and Regulation

As predicted, the proliferation of state and local pay ratios is growing as a San Francisco City Supervisor and Rhode Island State Representative each introduced legislation imposing a surcharge on companies similar to the one adopted in December by the City of Portland.  According to Bloomberg BNA, in San Francisco, the yet-to-be-drafted bill which was announced on January 24 would target publicly-traded companies that file compensation disclosures with the SEC.  The California State Legislature has previously considered legislation which would require companies to pay an augmented state corporate tax rate based on company pay ratios but was unable to pass it due to the state's requirement that tax provisions be approved by a two-thirds majority.  However, the San Francisco effort marks the first attempt by a locality in the state, and the second such attempt nationwide.  With Democrats having a two-thirds super-majority in both chambers of the California legislature, there is a greater possibility that California public companies could be subject to a pay ratio tax at both the state and local levels if Democrats choose to take up the previously failed state pay ratio tax again.  Meanwhile, the Rhode Island House Bill, H. 5141, would subject companies with a pay ratio exceeding 100 to 1 to a 10% surtax and a 25% surtax for ratios exceeding 250 to 1.  Rhode Island Democrats had previously entertained the idea of giving preferences in awarding state contracts to contractors with lower pay ratios, but the measure did not advance in the state legislature.