California bill targets companies with highly paid executives

California is mulling higher taxes on some of the country's largest companies, but the size of the tax increase would depend on how much its top-paid executive makes compared to its employees. The bigger the gap, the bigger the tax increase.

The bill by Democratic state Sen. Nancy Skinner passed out of its first committee hearing on Wednesday, keeping it alive a head of a Jan. 31 deadline to pass the Senate. State officials estimate the legislation could bring in up to $4.1 billion, which its supporters say could help defray the costs of providing public assistance to thes state's low-paid workers.

The proposal would only apply to companies that post at least $10 million of taxable income from business conducted in California. That would apply to about 2,000 companies nationwide, including the Walt Disney Co., headquartered in Burbank. The bill has gained support from heiress Abigail Disney, granddaughter of Disney co-founder Roy Disney — who has been advocating for higher wages for the company's workers.

"It is absolutely ridiculous for corporations to be making record profits while many of their employees are in working poverty," Disney said in a statement.

She also told lawmakers that workers at Disney "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."

Her comments about the company's workers stem from a visit she made to some Disney Land employees at an offsite union office in Anaheim.

The goal of the bill is to "incentivize large corporations to stop overpaying their CEOs and give workers a fair share," Sen. Skinner said in a statement. 

The proposal would increase the typical 8.84% business tax rate to 14.84% on companies where the ratio of top executive pay to the average worker is greater than 300%. Companies with a pay ratio of 200% to 300% would pay a tax rate of 13.85%, and so on. 

Disney CEO pay

Walt Disney Co. CEO Bob Iger received more than $65 million in 2018, according to media reports, a higher-than-usual figure because of a one-time stock award connected to the company's acquisition of 21st Century Fox. That salary was more than 1,400 times the median pay of a Disney employee, according to a study from Equilar.

In 2018, shareholders voted to reject Iger's pay package in a non-binding vote. Last year, the company responded by cutting $13.5 million of Iger's future potential earnings.

A spokesman for the Walt Disney Co. said the company committed to a minimum wage of $15 an hour, health insurance for a little as $6 a week, childcare subsidies and an initial investment of $150 million to fully pay for college degrees of hourly workers.

"The truth is, Disney has made significant investments to provide for the upward mobility of our employees," according to a statement from the company.

Opposition to the bill

Many of the state's business groups oppose the law, including the California Business Roundtable, which represents large companies. President Rob Lapsley said the bill would keep companies from coming the state.

"I'm not here today to defend CEO pay. What I am here today to do is to defend jobs," he said. "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."

California would not be the first government in the U.S. to try this, but would be the the largest. In 2016, city officials in Portland, Oregon, approved a 10% tax on publicly traded companies that pay their CEOs 100 to 250 times the average worker.

Some lawmakers signaled they want some changes before the bill comes for a vote in the Senate.

Rewards, not a tax?

One question is whether the state should make money off the tax. Lawmakers could write the bill so it rewards companies that have smaller gaps between their CEO's salary and the average pay of their workers.

Skinner says it's reasonable for the state to make money off the tax because the rising income inequality means more workers are relying on public assistance.

"California's taxpayers are basically paying the cost for the services that employees then turn to because they don't have a wage that can provide their families needs," Skinner said.

Republican state Sen. John Moorlach questioned why the Legislature would seek to meddle with the salaries of big companies when athletic coaches at some of the state's public universities make millions of dollars.

"Are we going to be looking at our own house," Moorlach said.

Skinner said public employees in California "by and large ... have a very decent wage," saying most of them do not face "the types of problems our low-wage workers are facing."

Abigail Disney told lawmakers the issue was a problem of corporate culture "50 years in the making."

"If your entire reputation as a company relies on the idea of its clean floors, you had better be willing to pay your workers enough to do the job well and with dignity," Disney said. "Because dignity is not a perk."

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• California