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Executive Pay

Portland’s Path to CEO Pay Reform

At a city council hearing, economic justice advocates helped build momentum behind a proposed surtax on extreme CEO-worker pay gaps.

Blogging Our Great Divide
October 27, 2016

by Sarah Anderson

At a city council hearing, economic justice advocates helped build momentum behind a proposed surtax on extreme CEO-worker pay gaps.

It’s looking like Portland, Oregon, has a good chance of becoming the first city in the nation to tax corporations with extremely wide pay gaps between their CEO and their workers. At an October 26 hearing, a majority of Portland’s city council members expressed support for levying a pay ratio surtax after listening to testimony from economic justice advocates.

“When I think about this policy, I think about the women who are largely women of color and moms who work in hotels,” Karly Edwards, who directs the Working Families Party in Oregon, told the council. “These women make barely over minimum wage, while CEOs like Christopher Nassetta of Hilton or Arne Sorenson of Marriott make millions.”

Both these hotel chiefs actually made more than $10 million in 2015.

A former labor organizer with UNITE HERE, Edwards told a story that illustrates how such extreme gaps can be bad for both workers and corporate bottom lines. In 2007, contract negotiations between the union and management of the downtown Portland Hilton broke down. The global chain refused workers’ demands, which included modest pay increases of 40 cents per hour for tipped workers, who were being paid the minimum wage, and 80 cents for non-tipped workers like housekeepers, who were making $10.10 an hour.

Eventually, the workers felt they had little choice but to authorize a boycott of the hotel, even though it would mean lost shifts and lost tips.

“That was a hit,” Edwards noted in her Portland testimony. “But that’s how hard these workers had to fight to get a wage increase.”

The Hilton corporation also took a hit. The boycott wound up costing the hotel nearly $2 million in lost revenue.

Portland Mayor Charlie Hales told a story at the hearing about the dramatically different experience he had at a company with a narrow CEO-worker pay gap. Between 2002 and 2012, Hales worked for HRD, an employee-owned engineering firm with a CEO-worker pay ratio of about 10-to-1. During this period, the firm grew from 2,700 employees to 8,000 and in only one year during that period did the company’s profit margin drop below 15 percent.

“Obviously, this model leads to prosperity and I was very happy about that on a personal level. It helped me put two kids through college,” Hales said. “But on the morale side, the impact was even more profound. Everyone worked a little harder because ‘your success was my success.’ And that egalitarian culture led to a strong work ethic that drove the corporation to success.”

Portland’s surtax proposal would encourage narrower pay gaps by making companies with CEO-worker pay ratios of more than 100-to-1 pay an extra 10 percent tax on the city’s existing 2.2 percent business license tax. Firms with ratios of more than 250-to-1 would pay an extra 25 percent.

At the hearing, officials with the city’s revenue bureau explained that the surtax would be easy to implement, thanks to a new federal regulation that will require publicly held corporations to report their pay ratios every year, starting with 2017 data. The bill’s champion, Commissioner Steve Novick, would like to see revenue from the surtax, estimated at up to $3.5 million per year, go towards social programs.

At the federal level, Rep. Mark DeSaulnier (D-Calif.), has just co-sponsored a bill that largely mirrors the Portland proposal. In a recent interview with Huffington Post Executive Business Editor Emily Peck, DeSaulnier said he welcomes the Oregon initiative. “If the West Coast does it and you have a critical mass,” he said, Congress “would have to take notice.”

A vote on the Portland surtax proposal is scheduled for December 7. Edwards, who was also instrumental in the recent adoption of a city resolution on fair scheduling, said the Oregon Working Families Party will be working to ensure that it passes.

“It’s hopeful to think that this could lead to CEOs having hard conversations with their boards and beginning to lower their inequality by lifting their workers up,” Edwards said. “Should those conversations not result in increases for workers, this surtax represents a commonsense way for the council to take action.”

The Portland City Council hearing on the surtax can be viewed here.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and is a co-editor of Inequality.org.

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