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Changes coming to the Securities and Exchange Commission threaten a state and local trend of trying to tax companies that pay high CEO salaries. So far, only Portland, Ore., has enacted a tax on companies that pay their chief executives hundreds of times more than their median workers. However, officials in San Francisco and Rhode Island are working on similar taxes.
The laws face an inadvertent challenge from President Donald Trump’s SEC appointees, who are expected to tweak the agency’s rule that provides the information essential to enforcing such taxes. A new SEC is likely to alter or kill its pay-ratio rule, which requires public companies to disclose how their CEO pay compares with that of their median worker.
In February, acting SEC Chairman Michael Piwowar took steps to delay the rule. If the rule is scrapped, tax laws such as Portland’s could become meaningless. Locals could revise the statutes, but that would require effort and could impose a very technical, complicated calculation on companies.
Such taxes could have some “minimal” influence in the crafting of compensation packages, Brett Herand, vice president of compensation consultants Pearl Meyer, told Bloomberg BNA in an email. “Every rational, tax-paying entity, whether an individual or a company, looks to minimize tax exposure but it’s not the primary driver of decision-making,” he said.
Companies try to ensure that executive pay qualifies for deductibility, but it is not a “primary driver of exec comp plan design,” Herand said. “Companies make decisions in the best interests of shareholders and other key stakeholders. For some, this may mean paying a CEO pay-related surcharge.”