California Targets Companies Where CEO Salaries Dwarf Workers’

LOS ANGELES, CA — It’s not the size of the salary that matters. It’s the pay gap between CEOs and worker bees that has caught the attention of California lawmakers, who are kicking the beehive with a bill that would impose higher taxes on companies with big pay gaps.

California has several of the highest paid chief executive officers in the nation including Tesla’s Elon Musk, Oracle’s Safra Catz, Disney’s Robert Iger, Qualcomm’s Steve MollenKopf, Cisco Systems’ Charles Robbins and, of course, Facebook’s Mark Zuckerberg. Not only do they all earn tens of billions in compensation, their earnings dwarf that of their average employee. And if one California lawmaker gets her way, those outsized CEO salaries will become a tax liability for those companies. If the bill passes, California would be the largest state to tie tax rates to executive pay.

Sen. Nancy Skinner (D-Berkeley) proposed a law that would impose higher taxes on large California companies with high pay gaps between the CEOs and employees. Her bill, SB 37, was approved by its first committee hearing on Wednesday and appears headed for a Senate vote. The size of the tax increase would depend upon the size of the pay gap. It would only apply to large companies that post at least $10 million of taxable income from business conducted in the state. There are thousands of companies that fall into that category. If it passes, it could raise more than $4 billion in taxes, according to state officials. However, the bill has stiff opposition.

Opponents of the legislation contend that it would cost jobs by driving major companies out of the state. Supporters argue that it would provide companies with an incentive not to pay CEOs outrageous salaries at the expense of the average worker’s pay.

The bill has, at least, one unlikely proponent. Disney heiress Abigail Disney, Walt Disney’s grandniece and granddaughter of Disney co-founder of Roy Disney, lobbied state lawmakers on behalf of the bill.

“At the happiest place on Earth, they are paid so poorly that they rely on food banks, sleep in cars or live so close to the bone that even a small problem could send them into a death spiral,” she told state lawmakers, according to the Los Angeles Times.

Disney would be directly impacted if the bill becomes law because it’s one of many companies where the CEO earns more than 1,000 times the average worker. In 2018, Iger earned more than $65 million while many Disney employees earn minimum wage.

“Corporate CEOs in California and throughout the country pocket big bucks while American workers struggle to make ends meet,” said Skinner, the bill’s author, said in a written statement. “SB 37 will incentivize large corporations to stop overpaying their CEOs and give workers a fair share.”

Skinner cited a 2019 report by the Economic Policy Institute, which found that CEO compensation has soared 940% during the last four decades, while the pay of the average worker has remained flat. In the late 1970s, U.S. CEOs were paid only 30 times more than the average employee. Today, CEO compensation is hundreds, sometimes thousands, of times higher, she said.

The bill would specifically penalize large companies where executive pay is more than a few hundred times that of the workers. According to CBS News, such businesses could see their tax rates jump from 8.84% to 14.84%. That has industry groups putting up a fight.

Rob Lapsley, president of the California Business Roundtable told lawmakers it would make companies think twice before coming to California.

"I'm not here today to defend CEO pay. What I am here today to do is to defend jobs," he told state lawmakers, according to CBS News. "Take the CEO pay out of it. What (the bill) is sending is a broader signal that the Legislature is intending to be able to regulate every aspect of free enterprise in this state."