Companies and their general counsel are closely following a newPortland, Oregon, tax that is based on the pay disparity betweenCEOs and average workers. This week Portland becamethe first in the U.S. to impose such a tax on about 550businesses, but it could spread to other cities.

The contentious tax idea hits at a time when companies arealready gearing up to comply with the U.S. Securities and ExchangeCommission's pay ratio disclosure rules that go into effect on Jan.1. Portland will base its tax on the numbers filed with theSEC.

Michael Stevens, a partner in Alston & Bird's employeebenefits and executive compensation group in Atlanta, says the taxis largely symbolic. “It's a sort of sin tax like those oncigarettes, alcohol and other behaviors the government wants todiscourage. Portland wants to discourage pay inequality,” heexplains.

“From a general counsel's stand point,” he says, “they [GCs] arealready probably grappling with the SEC's pay ratio rules. If wesee other jurisdictions decide to impose taxes, I think we'll seecompanies take a very hard look at getting more creative with theirmethods of calculation.”

Stevens explains that collecting the data, finding the so-calledmedian employee and figuring the ratio “is not as easy as pushing abutton in the payroll department.” The process is very timeconsuming and expensive for large companies, he says.

“Right now the focus is on a cost effective way to find thenumber. But if there is going to be a penalty on that number, thenpeople are going to redouble efforts to find other ways tocalculate it,” he says.

The SEC has given companies broad leeway in calculating theratios, he says, including using statistical sampling and taxreports.

Stevens says most companies are hoping the pay ratio rule, whichis part of the Dodd-Frank Act, will be repealed underPresident-elect Donald Trump's administration.

“The Republicans have already proposed legislation to pull backsome parts of Dodd-Frank, including the pay ratio disclosure rule,”Stevens notes. “If that rule is rescinded, then so is the Portlandtax because there will be no data for them to base it on.”

Couldn't Portland simply require companies to do the ratiosanyway, just for the city? Stevens doubts it. “My guess is the costof determining the number would be greater than the tax they wouldpay in Portland,” he says.