Companies that pay their CEOs too much could start paying for it in taxes

A new US law passed this week penalises companies whose chief executives make more than 100 times the median pay of their workers.

A US state has passed a law that will see companies reprimanded if their chief executive earns more than the median pay of their workers.

Portland's city council approved the law in an effort to combat income inequality.

Companies will be required to pay 10% in taxes if they violate the rule, according to the New York Times. If a chief executive earns more than 250 times as much as his employees taxes will increase 25%.

The New York Times reports that the tax is the first of its kind in the United States. An estimated 550 companies in Portland pay the business tax that the penalty is based on. 

The tax will take effect next year, after the Securities and Exchange Commission begins to require public companies to calculate and disclose how their chief executives’ compensation compares with their workers’ median pay. The S.E.C. rule was required under the Dodd-Frank legislation enacted in 2010.

Criticism of how much chief executives are paid has risen in recent years as their compensation has grown substantially. In 2015, the median compensation for the 200 highest-paid executives at public companies in the United States was $19.3 million, up from $9.6 million five years earlier.