An ordinance passed last week by the city of Portland, Ore., to address income inequality with a surcharge on excessive CEO compensation has gained worldwide attention. But while it’s being called the first-ever tax to directly address income disparity, two Wharton experts say that the ordinance could ultimately become counterproductive.
Portland city commissioner Steve Novick, who spearheaded the surcharge, traced the rising economic inequality in the U.S. over the past four decades to the topmost rung of the income hierarchy, arguing that CEOs populate it in large numbers. “We hope this idea spreads around the globe,” he said.
But Wharton accounting professor Wayne Guay faulted Portland for singling out only CEOs with its surcharge, which applies to heads of companies who earn at least 100 times the pay of their firm’s rank-and-file employees. Guay said the focus must instead be on raising incomes from the bottom up at corporations. Wharton management professor Adam Cobb noted that the surcharge could compel companies to outsource or offshore more jobs, leaving lower-level workers worse off than before.