S.1659 (Skoufis) / A.7454 (Kim)


Vice President


S.1659 (Skoufis) / A.7454 (Kim)


Tax Penalty Based on Compensation Ratios



The Business Council strongly opposes this legislation that would impose a tax penalty of ten or twenty-five percent of a corporation’s New York State tax liability if it is deemed to have an overly high “pay ratio” under the  U.S. Security and Exchange Commission’s wage ratio reporting standard. That SEC rule requires publicly traded companies to disclose the ratio of the compensation of its principal executive officer to the company’s median employee's compensation. This proposed legislation would impose a tax penalty on companies that report a “pay ratio” of 100 or greater.

This legislation should be rejected for several reasons.

  • There is, in effect, already a tax penalty on executive pay under federal tax law – and this provision is reflected in both New York State and New York City tax law. Adopted as part of the 2017 federal Tax Cuts and Jobs Act, Section 162(m) of the Internal Revenue Code places a $1 million-dollar limit on the amount of deductible compensation that a company can pay to their CEO, CFO, and other three most highly paid executives. In contrast, most other compensation paid to employees – executive or otherwise – is treated as a deductible business expense. Because of IRC §162(m), “excess” compensation paid to executives is already subject to a combined 27.5% federal and state tax increase in New York State, and 34.6% in New York City.
  • What this bill really does is impose a tax penalty on businesses with high executive compensation. It does nothing to distinguish companies with generous and/or balanced pay practices from those which do not. Example - according to U.S. Bureau of Labor Statistics, the most recent calculation of median wage for all occupations in New York State (for May 2018) was $21.63 per hour, yielding an annual median wage of about $43,260.  Of the fifty companies reporting a wage ratio of more than 100 to the SEC – the level above which a business would be subject to tax surcharges under this legislation – all but seven (86 percent) had a median wage higher than New York State’s median wage. In other words, this bill would impose a tax penalty on many employers that have higher than average wages across the board than does the typical employer in New York.
  • This bill also imposes tax penalties regardless of a business’ overall compensation package. The SEC calculation does not include the value of benefits available on a nondiscriminatory basis to all employees; therefore, it excludes consideration of an employer’s contributions to group insurance plans (e.g., health, life and disability insurance benefits) and to health savings accounts. Medical benefits are a significant portion of many employees' total compensation package, particularly for employees with lower wages. But this punitive tax legislation simply disregards an employer’s overall compensation package, and would result in a tax penalty for employers with robust health care and other employee benefit programs.
  • Finally, the bill would favor employers whose pay ratio is increased by eliminating low-wage employees, such as those businesses that out-source low-paying jobs.

In summary, regardless of its intent to promote more “fair” compensation practices, this bill would impose a crude “tax policy” measure that will penalize companies with good pay practices and valuable employee benefits.

For these reasons, The Business Council opposes adoption of S.1659 / A.7454.