In an aim to implement progressive policymaking and lower extreme income inequality, the city council of Portland, Oregon, has voted to bring in a "CEO Tax" for its 500 publicly-traded companies. The tax penalises companies based on the ratio of the CEO's wage relative to an average worker's wage. If a company's CEO wage is more than 100 times that of a worker, the company would have to pay a 10% surcharge on top of its initial business taxes. The new tax is estimated to raise $2.5 million a year.
Income inequality and wealth concentration have risen sharply in the last few decades. Particularly in the case of the US, CEO pay is now 200-300 times higher than an average worker's pay compared to 50 times in the late 1980's.
In a landscape where income inequality is rapidly increasing and entrenched, it is tricky to reduce or reverse that inequality. Some best laid plans have had mixed results. One example is Gravity Payments' CEO taking a pay cut to set the minimum wage of employees at USD70, 000 per annum. While employee morale has increased since his decision, several senior employees have walked out, citing a lack of fairness and performance-based incentives. Cities and countries are exploring a universal basic income which is touted to have great potential but details such as long-term financing mechanisms and impact assessment still need to be ironed out.
Portland's new CEO tax appears to be an exciting governance innovation and will need to be closely monitored to understand whether it is useful and scalable to other contexts.
- How will the CEO-to-worker ratio be monitored and how much will the penalties result in behaviour change?
- Is the CEO-to-worker ratio good enough as a basic measure of income inequality?
- How might city officials ensure that beyond narrowing the ratio, that the average worker actually enjoys a better standard of living?