CEO Accountability and Responsibility Act

The CEO Accountability and Responsibility Act would create two major changes. First, publicly traded corporations would see their federal income tax rate adjusted upward or downward based on a pay-ratio test: the ratio of the highest paid employee (or CEO) to the median compensation of all their US employees. The higher the ratio, the higher the tax rate would be, on a sliding scale that increases the rate by up to 3 percentage points depending on how large the pay gap is. The calculation uses the CEO/highest paid employee’s total annual compensation and the median of all US employee compensation, with specific rules for how compensation is measured (CEO/highest paid uses the SEC Summary Compensation Table; others use wages). Second, the bill would insert a procurement preference for federal contracts: agencies would give preference to entities whose pay ratio is less than 50-to-1, based on the same compensation-ratio definition. The bill also adds administrative provisions, including reporting requirements for compensation data, potential regulatory guidance, and a provision that treats related entities as a single employer for purposes of the pay-ratio calculation. An additional rule would temporarily increase the tax rate by 50% if a company sharply reduces US full-time staff while expanding contracted or foreign full-time staff. The act also clarifies the effective date (tax years beginning after enactment) and introduces related changes to how pay-ratio data are reported and used in contracting decisions.