H.R. 5019: CEO Accountability and Responsibility Act

The CEO Accountability and Responsibility Act is a proposed legislation that aims to modify the federal income tax structure for publicly traded corporations based on the pay disparities between the highest-paid employees, typically the CEO, and the median wages of all employees within the company.

Key Provisions

1. Adjusting Corporate Tax Rates

The bill seeks to amend Section 11 of the Internal Revenue Code to establish a system where the income tax rate for publicly traded companies will be impacted by the compensation ratio. This ratio compares the pay of the company's highest-paid employee (either the CEO or the next highest-paid employee) to the median employee compensation.

2. Compensation Ratio Explained

The compensation ratio is calculated as follows:

• Numerator: The higher amount between the salary of the chief executive officer (CEO) and the highest-paid employee.
• Denominator: The median salary of all employees at the company in the United States.

3. Tax Rate Adjustments Based on the Ratio

Depending on the resulting compensation ratio, the bill proposes percentage point adjustments to the tax rate. The adjustments are as follows:

4. Additional Requirements and Penalties

The bill stipulates that if a company reduces its workforce by more than 10% while increasing the number of contracted or foreign employees, the tax increase adjustment will be increased by 50%. This aims to discourage companies from laying off domestic workers in favor of cheaper labor sources.

5. Reporting Obligations

Under the proposed legislation, publicly traded corporations will be required to report specific compensation details to the Secretary of the Treasury. This includes any other relevant matters as required, ensuring transparency in executive compensation practices.

6. Preference for Contracting with Lower Pay Ratio Companies

The bill also introduces a preference system in the procurement process for government contracts. Entities that have a compensation ratio of less than 50-to-1 will be favored when bids or proposals are evaluated for government contracts. This aims to encourage fairer pay practices among suppliers to the government.

7. Effective Date

The changes proposed in this bill would apply to taxable years that begin after the legislation is enacted.

Relevant Companies

• AMZN (Amazon.com, Inc.): As a large publicly traded corporation with significant CEO compensation relative to its employee median wage, it may face increased taxes depending on its compensation ratio.
• GOOGL (Alphabet Inc.): Alphabet’s CEO compensation might trigger adjustments under this bill, impacting their overall tax liabilities.
• AAPL (Apple Inc.): With a focus on its executive pay policies, Apple could see tax ramifications if their pay ratios exceed certain thresholds.