This raises some interesting questions / side effects:
1) Companies may now have a direct incentive to have their lowest income earners be outsourced/contracted out to boost the median pay amount.
2) It was smart of them to include compensation such as stock options. However if a city starts to expect this income, it will all go away in recessions when CEO's stock options are not valuable. ie more money to the city in boom periods and not much in bust cycles.
And/Or move their companies too. Particularly all the "tech startups" that think they don't need physical office buildings anymore. For a lot of companies, SF is becoming difficult to justify.
Well-intended ideas, not fully thought out, leading to unintended consequences... nothing really new for SF.
I understood this to be the primary intended consequence!
San Francisco is overheated and a majority of residents would expect to benefit from CEOs or tech companies reducing their pressure on housing and services.
getting tech out of SF would actually do a lot of people good. I've worked at countless software companies and always wondered why the companies had to be located in the most expensive city in the US.
Isn’t it the most expensive city because of all the tech workers? Wherever you get a congregation you’ll get that effect (as Austin and Colorado are finding out), and companies generally start where workers are available (that‘a why film and entertainment industries are still largely is in LA, New York, London even if they film around the world)
Only partially. You are correct that congregation does drive up prices. However congregation drives building more housing and other things which drives prices back down. SF has done less to drive prices back down than any other city and as a result has the most expensive housing. Eventually an equilibrium is reached (in practice this is false as things are always changing, but close enough)
And to be clear, it's only on business that is done in San Francisco. Essentially, it's going to turn into a sales tax for SF.
> The tax will levy an extra 0.1% to 0.6% on gross receipts made in San Francisco for companies whose highest paid executive makes 100 times or more its median worker’s salary. The amount levied will increase in 0.1% brackets proportionally to the pay ratio. A company whose highest paid employee earns 200 times more than its median San Francisco worker will get a extra 0.2% charge on its gross receipts. For companies whose CEO makes 300 more, the charge jumps to 0.3% and son on. The tax caps at 0.6%, and only companies with gross receipts over $1.17 million will be targeted.
The interesting question, in my opinion, is whether Stripe's revenue from other San Francisco companies is considered gross receipts within the city or someplace in Delaware or Ireland.
I'm sure they could figure out a way to get that revenue to be transferred elsewhere. That said, Stripe doesn't likely pay its CEO 100x the average employee wage since it's a pre-IPO company. The CEO likely earns a few million in raw $$$ and the average salary at Stripe is likely past $100k. So, I doubt it's a real issue.
So, for now, it's probably a non-issue... and they have time to adjust.
That makes it even more unlikely that there will be much revenue at all generated by this tax. Seems like the beneficiaries of this new plan will be tax accountants and lawyers creating new complicated business structures to bypass the tax...
or just use hollywood accounting. You have a parent company with high paid employees. You have a separate company with low paid employees. Or move. Or change title.
Haven't read the law, but if the impact is large enough wouldn't some companies think about outsourcing their decision making to a different company? I'm sure the lawyers can come up with an agreement that in day to day operations is the same as the management team being employees but that doesn't trigger the extra tax because the decision makers aren't really employees. You just bifurcate the company into two separate companies, the highly paid people and everyone else.
It's about the business location not the CEO, but the point stands. I'm not that familiar with US law, but can't a business be incorporated anywhere in the US/California and still do basically all its activity in SF?
The tax is based on entities "engaging in business within the City as an administrative office" as defined elsewhere in city law (for the payroll tax component) or just plain "engaging in business in the City" (for the tax on gross receipts attributable to the City portion), not by place of incorporation, so, yes, a business can be incorporated anywhere else on the planet, and do basically all of its activity in San Francisco, but that's not going to limit its exposure to the tax.
The law doesn't care for the work location of the CEO. It could even be outside of the US, where exchange rates and different laws around stock based compensation could make this a nightmare.
No they aren't. Part of being rich is not having to worry about money, which is why plenty of rich people live in cities, states and countries that tax them more: the benefits of doing so outweigh the costs.
Or, move some of the obscene wealth away so the residents aren't gentrified out of existence, like they already have been? It won't just be CEOs, it'll be all the software engineers and the like too.
and five years from now i get to hear how it is everyone else's fault that real estate property prices fell in san francisco, which destroyed people's equity and retirement plans.
Not to mention how they will be complaining about the underfunded schools, the lack of investment in infrastructure, social programs, free clinics, "no one is there to help the homeless", etc, etc...
It has been 5 years since France tried and failed to put 75% taxes on the "super rich" and they ended up with less tax revenue than previous years. Those who don't learn History are bound to repeat it...
> Companies may now have a direct incentive to have their lowest income earners be outsourced/contracted
The median was presumably chosen because it's relatively harder to shift in this way. Although this depends on the exact pay distribution of your company, you'd expect getting rid of people from the bottom to change the median person but not typically change the median value.
(This is also a mature enough problem that I'd expect other provision in the law to prevent this - are we sure it doesn't include outsourced workforce pay?)
I bet it's actually easier to change the median. Often you'll scale a sales or support team (much lower cost than engineer) and these teams can often balloon especially if the company has a direct positive margin on their work (generally the case in sales). Now, 30% of the company is sales/support and there are quite a few options for outsourcing your sales team to a "professional sales company."
1) Lowest-income jobs that can easily be outsourced are very likely already outsourced. If the company has the option to do this, why should it hold off doing so?
Presumably because there was no significant advantage, or no sufficient incentive to do so. If the executive team is trying to raise the median salary of their employee base, however, there's now a strong incentive to outsource the lowest-paid portion of your employee base to contract work (even if contractors might cost marginally more), since it'll raise the median wage of your employees.
e.g. let's say my employees' wages are:
[1, 1, 1, 1, 1, 10, 10, 10, 10]
Now let's say I could replace each employee with a contractor by paying 0.5 more than the salary of an FTE.
In the above example, let's say I want to raise the median salary of my employees to 10. I could do that by either:
* Paying one of my employees 9 more (boosting them from 1 to 10), at a total cost of 9
* Replacing all my 1-salaried workers with 1.5-salaried contractors, at a total cost of 2.5 (five workers, each getting a 0.5 bump)
It's clear that I'd never want to do this if contract workers and full-time workers were just as favorable for me (since I'd be paying more to get the same work done). If all of a sudden the company were incentivized to raise their median employee's salary, though, all sorts of non-common-sense solutions can come out of the woodwork, and replacing FTEs with contractors (even at a cost) could be the incentivized solution.
How exactly will SFO know how much the CEO's compensation is? And maybe companies can get rid of the CEO title and just call her Chairman of the Executive Council or something?
1) Companies may now have a direct incentive to have their lowest income earners be outsourced/contracted out to boost the median pay amount.
2) It was smart of them to include compensation such as stock options. However if a city starts to expect this income, it will all go away in recessions when CEO's stock options are not valuable. ie more money to the city in boom periods and not much in bust cycles.