Record Compensation
Portland introduces law to tackle 'phenomenon of outrageous CEO pay'. Reuters

Businesses in Portland will be charged a higher rate of tax if their chief executive earns 100 times more than the average worker at the company.

The city in the northwestern state of Oregon is the first state in America to pass such law, which is aimed at addressing the "phenomenon of outrageous CEO pay," driving inequality.

Portland City Commissioner Steve Novick enacted the measure after being influenced by the ideas put forward by French economist Thomas Piketty, in his book Capital in the 21st Century.

Novick said: "When I first read about the idea of applying a higher tax rate to companies with extreme ratios of CEO pay to typical worker pay, I thought it was a fascinating idea – the closest thing I'd seen to a tax on inequality itself."

He added that Piketty's work demonstrated that extreme CEO pay is not just an eye-catching example of, but a major cause of, extreme worldwide economic inequality.

"Extreme economic inequality is – next to global warming – the biggest problem we have in our society," said Novick.

"The top one per cent, and especially the top one-tenth of one percent, have a far larger share of wealth and income than they did forty years ago."

The move to introduce the tax has been made possible a new law adopted by the US Securities and Exchange Commission, which requires public companies to disclose the compensation of the chief executive and the median compensation of its employees.

Portland, which normally charges businesses 2.2% on net income, will increase the tax rate by 10% where the CEO-worker pay ratio is over 100.

Where the CEO earns more than 250 times the median wage, a further 25% will be added to the tax rate.

Aside from tackling income inequality, the surtax is expected to benefit Portland's purse by an estimated $2.5m (£1.9m) to $3.5m (£2.78m).