Multistate: Proposed Bills Address CEO Compensation

This year, several states are considering tax legislation addressing executive compensation. Certain of the proposals seek to reduce the disparity between the amount paid to an organization’s CEO and the amount earned by average workers. Other proposals simply limit deductions companies take related to compensation.  In New York, Senate Bill 1813 and Assembly Bill 3691 would establish a 10 percent surtax on companies that report a pay ratio (compensation to the highest paid executive compared to that of the median employee) to the SEC of at least 100 to 1. The surtax would increase to 25 percent if the reported pay ratio is 250 to 1 or greater.   Hawaii Senate Bill 747 would adopt a pay disparity general excise tax (GET) surcharge on companies whose top executive earns at least 100 times more than the median income of company employees. The rate of the surcharge would be 0.1 percent of the company’s GET liability. In Massachusetts, Senate Draft 114 would impose a surtax on publicly-traded utility companies operating in the Commonwealth if the CEO-to-median worker compensation ratio is equal to or above 100:1. If the ratio is equal to or above 100:1 but less than 250:1, the surtax would be 10 percent. If the ratio is equal to or above 250:1 the surtax would be 25 percent. The draft bill would prohibit such companies from raising utility rates until the company was in compliance with the 100:1 ratio. A couple other proposed bills would limit compensation deductions generally.  For publicly traded corporations, Iowa House File 69 would provide that no deduction is allowed for amounts paid or accrued during the tax year as compensation for the CEO or person acting in this capacity.  The Iowa bill would also impose a one percent tax on the compensation paid to the chief executive of an insurance company. For a multistate insurance company, the tax would be applied to the apportioned compensation of the executive. Oregon House Bill 2254 would require an addback for any individual’s compensation in excess of  $1 million that is deducted for federal purposes.  Please stay tuned to TWIST for future updates on these bills.