In 2019, the median annual salary for a First Hawaiian Bank worker was $ 54,729.
The bank’s chief executive officer, Robert Harrison, earned $ 6,011,668.
Harrison was paid 110 times more than the bank’s median, the company announced to the US Securities and Exchange Commission last year.
A new proposal – Senate Bill 747 – in Hawaii legislation would change that by adding a general excise tax surcharge to any island company where the chief executive officer makes more than 100 times the average employee in the company.
Hilton Grand Vacations said it paid its CEO $ 5,905,405 in 2019, 150 times its average employee.
Cory Lum / Civil Beat
The idea comes from Hawaii struggling to shut down a source of income created by the decimation of several industries after the coronavirus shutdown. The need for revenue is so great that Governor David Ige has proposed cuts in government wages and benefits of $ 285 million. He did not respond to a Civil Beat request for comment on this bill.
The proposal is also part of an ongoing national push against economic inequality. During Senator Bernie Sanders’ presidential election, he proposed a federal tax for companies where the highest-paid employee earned more than 50 times the median. He and other members of Congress passed similar federal laws to no avail.
Listed companies have been required to report their CEO compensation ratios annually since 2018 as part of the reforms of the financial industry approved by the 2010 Dodd Frank Act.
Portland, Oregon was the first city to introduce a tax on companies with high CEO salaries in 2016. San Francisco followed after voters approved an election initiative last November. Hawaii would be the first state to pass such laws, though eight other states are considering similar laws.
Joli Tokusato, a receptionist at the Ilikai Hotel in Waikiki, thinks the differences between what executives in Hawaii Hotels do and the median worker are “obscene”. She likes SB 747 but said she would rather see another bill requiring hotels to hire laid-off workers.
“The state definitely needs the revenue, but I’ll be shocked if it actually works,” said Tokusato.
Tokusato’s cynicism may be deserved. Hawaii Senator Rosalyn Baker, who heads the trade and consumer protection committee, said she had no plans to convene a hearing on the bill. The measure must be reviewed by its committee and the Ways and Means Committee, which deals with finance-related bills, before it can be submitted to the entire Senate for vote.
Baker said her committee did not have enough time to consider the issues raised in the bill and the move did not seem to have much support.
“Nobody asked for it, nobody asked for it, so we moved on to other things that seemed to be a higher priority for the committee,” she said.
Senator Donovan Dela Cruz, who chairs the Ways and Means Committee, said the bill would be heard in Baker’s Committee by Friday, referring to his committee.
Senator Stanley Chang, vice chairman of the Trade and Consumer Protection Committee, presented the bill with Sens. Laura Acasio, Gil Keith-Agaran, Karl Rhoads, Les Ihara, Maile Shimabukuro and Brian Taniguchi.
“I hope we will continue this conversation in both the community and the legislature, and I hope this move will be successful at some point,” said Chang. “The aim of this calculation is to ensure that managers and employees alike benefit from it.”
Growing wage gap
The gap between CEOs and employees has not always been so great. In 1980, Bloomberg Businessweek reported that the CEO salary to employee salary ratio was 42 to 1.
According to an analysis of S&P 500 companies by the AFL-CIO, the ratio is now 264 to 1.
Sarah Anderson is the director of the Global Economy Project at the Institute for Policy Studies, a progressive think tank based in Washington, DC
She has studied executive compensation for two decades and has helped companies disclose the pay gap between CEOs on their SEC filings.
She said CEO payroll taxes are still a very new topic that has gained momentum in recent years. There’s a business case for taxes too, she said, noting that large wage differentials can hurt employee morale and increase the company’s turnover rates.
Anderson said Chang’s proposal is a great way to use the tax code to motivate companies to narrow the wage gap between CEOs and workers.
Anderson said she would encourage Hawaii lawmakers to consider a tiered tax for corporations based on how extreme their CEO salary rates are.
“The people at the top of companies are just not a hundred times more valuable than ordinary workers,” she said. “It sends a disempowering message to workers that they pay the top person so much more than others.”
Keli’i Akina, director of the Grassroot Institute, says Hawaii should stop raising taxes.
Cory Lum / Civil Beat
But that doesn’t justify a new tax, said Keli’i Akina, who heads the nonprofit advocacy group Grassroot Institute. Akina noted that Hawaii is one of the highest taxed states and is already an expensive place to do business.
“If lawmakers are really interested in helping us recover the economy, they should forget about tax hikes and instead look for ways to stimulate the economy,” he said in an email. “Any political goal they could have, from promoting new industries to increasing revenue, would be better achieved by promoting economic growth and prosperity.”
Elsewhere, critics of the CEO’s wage differentiation taxes have called the proposals arbitrary, saying that executive pay reflects the value directors bring to companies.
“Nobody is upset about Steph Curry or Beyonce making a certain amount of money, but the person running the stadium is doing a fraction of what they did,” Carol Roth, CEO of management consulting firm Intercap Merchant Partners, told CNBC Year . “So I don’t understand why there is a comparison between what a CEO does and a quote that the average worker doesn’t quote.”
Tom Yamachika, president of the Hawaii Tax Foundation, said the organization has no position on the bill but generally does not believe that tax legislation should be used to promote social policy.
Other states
The wage differences between CEOs and employees vary greatly depending on the company.
The Costco middle employee earned $ 39,585 in 2019, 209 times less than the Costco CEO, who reported more than $ 8.2 million in compensation.
At large hotel companies like Marriott, Hilton and Hyatt, the ratio is even greater. The Hyatt CEO earned $ 14.7 million in 2019, 416 times the average pay of $ 35,358.
CVS, which owns Longs Drugs, paid its CEO more than $ 36 million in 2019. The middle worker received $ 46,140, which resulted in a 790 to one wage gap.
Portland, Oregon, introduced the first tax on companies with high compensation rates for CEOs in 2016. The city limited the tax on publicly traded companies, bringing in $ 3.5 million in 2017 and $ 4 million in 2018, NBC News reported.
San Francisco voters passed a more comprehensive version of the tax in November. The San Francisco tax applies to both public and private companies. Private companies are required to report their CEO compensation rates to the local government. It is expected to raise at least $ 60 million and up to $ 140 million annually.
The San Francisco measure also uses the city’s median employee salary as a benchmark, rather than allowing companies to compare their CEO salaries with those of their own employees.
Both Portland and San Francisco have graduated scales that increase as the company’s CEO salary percentages increase.
That’s not the case with the Hawaii Bill, which would add a 0.1% surcharge to the tax liability of a company where the CEO’s compensation rate exceeds 100 to 1. Like the San Francisco measure, SB 747 would apply to both public and private companies. Chang said he did not yet know how much money it could bring.
He said he was partly inspired by the federal legislation introduced by Elizabeth Warren and hoped this would stimulate dialogue on economic inequality in the state. He said he has not yet spoken to the legislature about the measure.
“The pandemic has led to a crisis here in the state of Hawaii, economically and otherwise. I hope our legislature will recognize the need to take bold action to fight the pandemic, ”he said.
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