Equilar Blog

The Top 5: Will a High CEO Pay Ratio Mean Higher Taxes?

November 1, 2016

1. Potential taxation: A new wrinkle in the CEO pay ratio

In Portland, Oregon, the city council held a hearing last week that considered a surtax on companies who have a significantly large CEO pay ratio. According to the proposal, a company in Portland would owe a 10% on top of its current business tax if its CEO pay ratio is higher than 100-to-1. For example, if a company owes the city $50,000 in taxes and it’s pay ratio is 150-to-1, it would be charged a $5,000 surtax. According to the Huffington Post, that would go up to 20% at a ratio of higher than 200-to-1.

Of course, this surtax could depend highly on how the ratio is calculated, and even with a passing vote it’s likely the debate would be far from over. The Equilar blog recently weighed in on other considerations companies must take when it comes to the CEO pay ratio.

2. Non-profit CEO pay

A new study found that average nonprofit CEOs earn $120,000 per year. According to the article, “it’s hard to argue that anyone with a six-figure salary is underpaid.” While it’s true that non-profit CEOs are probably less likely to be in it for the cash than counterparts at multinational moneymaking machines, if they look at their scope of work and their output and compare it to other employment opportunities at their pay grade, they may beg to differ with this statement.

3. Be mindful of when you sell stock

According to a Bloomberg report, Palo Alto Networks Inc. executives sold millions worth of stock over the last two fiscal years. The compensation consultant quoted in the article aptly notes that there is nothing wrong with selling stock you’ve earned, and cashing out after vesting can be “a sound move for executives looking to diversify.” However, not all directors and investors look upon this activity fondly, so it’s wise to be mindful of the potential pushback. And this is especially true if your company just received 64% of shareholder approval on Say on Pay the previous year.

4. Study suggests that top institutional investors skew CEO pay

A Harvard Business Review report opined that common ownership among the largest institutional investors such as BlackRock, Vanguard, State Street, Fidelity and others has had a meaningful influence on increasing executive pay. According to the authors, “In industries with high common ownership concentration, top executives are rewarded less for the performance of their own firm but rewarded more just for general industry performance.”

5. Australian leader calls for corporate mental health as a CEO performance metric

According to Jeff Kennett, who is chairman of BeyondBlue and a former Australian government official, increasing pressure on high-profile business leaders means that mental health and stability of employees is a matter of corporate risk. He suggests that if workers do not seek help in dealing with stress and other issues for fear that it will affect their jobs, productivity levels could suffer greatly. As a result, he’s calling for corporate mental health to be a factor in CEO pay.

"At a part of Australia's history where we're trying to address family violence, where we're trying to address bullying, where we're trying to address good mental health practices, it is time for industry leaders big and small to give the mental health of their workforce the same priority they would give any other measurable figure," Kennett said.

Read more about other “non-financial” performance metrics in a recent Equilar blog.

For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Marketing Communications at dmarcec@equilar.com.

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