“Overpaid Executive Tax” in SF hits firms that pay CEOs 100X more than workers

Businesses can either pay tax, reduce top executive salary, or pay workers more.

Read the whole story

 

[quantum cyborg]

While this is an interesting solution to a real problem, the way it was described sounded like it could be gamed. I hope they thought it out thoroughly.

 

[zepi]

How long until they find a way to pay a "not salary" to the top execs and bypass the law completely?

Way to bypass is to outsource low earning employees.

Auxillary nurse, cleaner or reception clerk at a private hospital? Not anymore, hospital outsources nurse auxillaries to an employment agency that rents them back per hour to the same private hospital.

Median salary of hospital goes up once only people on payroll are doctors and they avoid the penalty tax for CEO of the chain of hospitals who earns 15M/year.

 

[Ancan]

x100 is still insane IMO, but what do I know, living in the communist republic of Sweden which actually is more of a social-capitalistic monarchy.

 

[Threadripper3]

Five bucks says there will be a known workaround for affected companies within a couple weeks. Bonus instead of salary, stock options, etc.

Of course they will find loop holes or just live else where
This does not mean we given up .,. It means we take laws like this to every jurisdiction on the planet , and plug the holes

Nobody needs this kinda of money , they will survive

 

[kukhuvud]

I support this tax.

 

[weygold]

1. "This applies only to companies that earn a little over a million dollars in revenues."

2. From the measure text: "Compensation" means wages, salaries, commissions, bonuses, property issued or transferred in exchange for the performance of services (including but not limited to stock options), compensation for services to owners of pass-through entities, and any other form of enumeration paid to employees for services.

3. This is a modification to the tax code, so nothing is addressed about contractors, etc.

https://sfelections.sfgov.org/measures

 

[uberDoward]

And watch as senior managers suddenly become consultants, or the cheapest resource get outsourced.

Don't get me wrong, I completely support the intent of this, Senior salaries have got completely out of hand, but I'm also a very cynical person.

This is exactly what will happen.

Outsource the entry level, and consultants will spring up around the company.

 

[MrMorden]

Way to bypass is to outsource low earning employees.

Auxillary nurse, cleaner or reception clerk at a private hospital? Not anymore, hospital outsources nurse auxillaries to an employment agency that rents them back per hour to the same private hospital.

Median salary of hospital goes up once only people on payroll are doctors and they avoid the penalty tax for CEO of the chain of hospitals who earns 15M/year.

I'd tend to agree with the vulnerability of this proposal to outsourcing, but the hospital has probably already outsourced everyone they can. Doctors are already contractors at most hospitals in the US.

 

[freaq]

Good idea but this is not something that municipal law should do, what if every municipality set that up, that would be nuts... statewide, maybe, nationwide yes.

But SF getting taxes for an international business having a tiny presence there, that seems kinda ridiculous.

 

[snoopy.369]

And watch as senior managers suddenly become consultants, or the cheapest resource get outsourced.

Don't get me wrong, I completely support the intent of this, Senior salaries have got completely out of hand, but I'm also a very cynical person.

Agreed, this is going to lead to more and more low level positions being filled by contractors. I also have a problem with the idea that someone who runs a company of expensive employees should be able to earn more (tax free) than someone runs a company of working class employees.

Of course you do.

Try to replace income with productivity to get a real idea of what a proposal is about.

We are going to tax really productive people if they are more than 200 times as productive as dumb unskilled janitors. Yes, if you dare to get a PhD and work extremely hard, we will punish you because some high school dropout is getting minimum wage.

I look forward to really good green energy policy under president Harris. I do not look forward to the economic ignorance like this.

What is next California, tax Elon Musk 70% of all his stock holdings because "billionaire"? (Real proposal although I may remember the numbers wrong)

It wasn't that long ago (in many of our lifetimes) that the top tax rate (for incomes a few million) was 70%.

 

[krhodes1]

Unless they've written this very carefully to close all the loopholes that a CEO can earn "no salary" but actually be paid millions and have a giant golden parachute, it's barely going to make a difference. Does anyone have the ability to tell if this is the case?

Let’s pretend your loophole closed fantasy is real. What happens next?

Yep, no more executives in San Francisco. You will have successfully taxed them right out of your jurisdiction.

I wonder if the taxers will cry at that point or rejoice at how even the income is in their economic wasteland of 100% minimum wage jobs.

Not really, businesses will simply pay the tax.

This - compared to the billions and billions the companies that do business in SF make, the pittance that will be raised by this tax just don't even matter. They will just call it a cost of doing business and carry on. Hopefully SF gets some money they can do good with out of it.

 

[Deadwing]

Gee, a tax on the rich was opposed by Republicans. What a shocking surprise.

 

[Static and Noise]

Unless they've written this very carefully to close all the loopholes that a CEO can earn "no salary" but actually be paid millions and have a giant golden parachute, it's barely going to make a difference. Does anyone have the ability to tell if this is the case?

Let’s pretend your loophole closed fantasy is real. What happens next?

Yep, no more executives in San Francisco. You will have successfully taxed them right out of your jurisdiction.

I wonder if the taxers will cry at that point or rejoice at how even the income is in their economic wasteland of 100% minimum wage jobs.

Very quick Googling shows California's taxes are among the highest in the US. Hence why all companies and executives have left California. Hence why Cali only has the 8th highest GDP per capita of US states. It's sad, really.

 

[Static and Noise]

This seems like a great way to get companies to relocate. It's not like California isn't already a mess of high taxes and anti-business laws, just keep pushing, eventually they will leave.

On that note, move on over to "flyover country" we like having jobs and generally aren't fans of these business hating, wealth demonizing, NeoMarxist ideals that seem to be pushing California residents out of the state. We'd be happy to have you.

This tune is one conservatives have been singing for decades.

"Any day now. AAAAANY DAY NOW!!!"

 

[Deicidium369]

And watch as senior managers suddenly become consultants, or the cheapest resource get outsourced.

Don't get me wrong, I completely support the intent of this, Senior salaries have got completely out of hand, but I'm also a very cynical person.

Outsource the execs to India

 

[MrMorden]

"Employees' salaries are based on experience and on value to a company."

This was a written response because there's no way he would've been able to deliver it with a straight face.

It would be a substantial improvement if CEOs were required to have +EV to draw any pay at all beyond minimum wage, let alone some correlation to their value.

 

[iloving]

>Employees' salaries are based on experience and on value to a company.

Wow what a fantastic pile of horse shit. Everyone knows that it's all one incestuous big Old Boys Club and that skill, experience and vision are at best tangentially connected to the people in those positions.

Even if that statement was true, it _still_ doesn't justify them making such ludicrous amounts of money. This is greed, pure and simple, and it makes sense to tax them at the same disproportionate rate as the compensation these people unjustifiably believe they are entitled to.

 

[Mark086]

It will be challenged on jurisdictional grounds if they try to apply it to any company who's CEO doesn't reside or work within their jurisdiction. Period.

You can't have every shitty little government entity imposing rules outside their local area just because a business may also operate there.

 

[HiroTheProtagonist]

And what is this supposed to accomplish, apart from petty virtue-signaling? CEOs should get paid whatever their board of directors think they're worth.

It opens up people to the idea that maybe, just maybe, C-level compensation is so wildly out of control that some regulation is needed. And perhaps the San Francisco implementation won't be perfect, but if it's at all effective it leads to popping up on referendums in other major cities with enhanced verbiage. But it has to start somewhere, it has to start sometime, what better place than here, what better time than now?

 

[jhodge]

"Large businesses—those with over $1 billion in gross receipts, 1,000 employees nationwide, and administrative offices in San Francisco—..." (emphasis added)

I foresee legal battles coming over the definition of "administrative offices". That looks like the place to attack this with a combination of Deleware incorporation, execs working remotely from outside SF, etc.

 

[marmelade]

And what is this supposed to accomplish, apart from petty virtue-signaling? CEOs should get paid whatever their board of directors think they're worth.

It opens up people to the idea that maybe, just maybe, C-level compensation is so wildly out of control that some regulation is needed. And perhaps the San Francisco implementation won't be perfect, but if it's at all effective it leads to popping up on referendums in other major cities with enhanced verbiage. But it has to start somewhere, it has to start sometime, what better place than here, what better time than now?

Seems like more of a corporate governance issue to me. The problem is the consolidation of wealth into managed funds, which then have disproportionate representation and influence on corporate behavior. The people running these funds are clearly OK with executives at trillion-dollar companies making out like bandits. If individual shareholders were (a) more plentiful and (b) had more representation, they could make their voices heard.

The government, however, has little positive contribution to make on the matter. This seems at best a band-aid.

 

[art_haali]

City leaders also said the new tax "would allow the City to hire hundreds of nurses, doctors, and first responders."

A cynical interpretation:
"Now the government benefits from in-equality and have a twisted motivation to increase it. Didn't they want to fight it?"

But actually, I support this initiative. Hopefully, these 0.4-2.4% will help to curb such practices and are will not be taken from workers' salaries.

Nice!

 

[rosen380]

just had Excel generate 300 random salaries between $30k and $150k. The median value was $86k, so if these are my employees, I can make $8.6M. That is OK, but I did want to buy a new boat, so...

If I give a guy making $86k a $1k raise, I can give myself a $100k raise! That was easy.

If I fire the bottom 10% and replace them with contractors from a third-party -- even if it costs me a 20% premium, my expenses go up $202k, but my median salary goes up to $93k and now I can give myself another $600k raise.

While I'm at it... two people making $93k now will get raises to $95k. I can give myself another $200k raise at a cost of $4k. And lets hand out 4 more $1k raises which gets me another $100k bump.

Up to this point, I've increased my costs (me aside) by $211k which allowed me to take home an extra $1M

 

[YetAnotherAnonymousAppellation]

I know next to nothing about American law, but does a city even have the right to access this information? In Canada, I'm pretty sure this would be immediately derailed by our privacy laws.

 

[ChronoReverse]

I know next to nothing about American law, but does a city even have the right to access this information? In Canada, I'm pretty sure this would be immediately derailed by our privacy laws.

Even up here in Canada the CRA and provincial tax authorities have every right to know exactly how much money you're making. I don't see why a city wouldn't either. You can't go about publishing it but taxes is one area that governments have always had the ability to look.

 

[jhodge]

just had Excel generate 300 random salaries between $30k and $150k. The median value was $86k, so if these are my employees, I can make $8.6M. That is OK, but I did want to buy a new boat, so...

If I give a guy making $86k a $1k raise, I can give myself a $100k raise! That was easy.

If I fire the bottom 10% and replace them with contractors from a third-party -- even if it costs me a 20% premium, my expenses go up $202k, but my median salary goes up to $93k and now I can give myself another $600k raise.

While I'm at it... two people making $93k now will get raises to $95k. I can give myself another $200k raise at a cost of $4k. And lets hand out 4 more $1k raises which gets me another $100k bump.

Up to this point, I've increased my costs (me aside) by $211k which allowed me to take home an extra $1M

If you want to play that game, drop your corporate health insurance and add the 'employer contribution' to each employee salary so they can go buy insurance from an exchange. Now that you're no longer administering health insurance, you both cut your costs and raised median salary, so you can give yourself a big raise!

 

[irnoob]

Watch as those companies begin relocating.

From the article:

"This tax not only affects large, local firms like Salesforce, but also large corporations that do business in the city, like Visa and J.P. Morgan,"

From the article:

"The tax is expected to raise $60 million to $140 million per year. Large businesses—those with over $1 billion in gross receipts, 1,000 employees nationwide, and administrative offices in San Francisco."

 

[Z06 Vette]

I am trying to figure out the problem this tax resolves. I don't see it resulting in an improvement in the wages of employees. The company will either pay the tax (the executives continue to make the big bucks), they will find a loophole, or maybe the executives salaries come down. But how does the CEO making less money improve the life of the employee?

edit: It appears to me that it is cheaper to pay the tax then to increase the pay of the employees to avoid it.

 

[Oldmanalex]

"Employees' salaries are based on experience and on value to a company."

This was a written response because there's no way he would've been able to deliver it with a straight face.

For real. Employee salaries are based on how hard hard they are to replace, which comes from the supply of qualified labor and demand of competing positions. The only time the value they bring comes into it is if that value drops below their pay, at which point, they're out of a job.

If that were true, most top execs would be earning a fraction of their current take home pay. There is plenty of supply, especially of wannabe-C suite idiots. Hell for a mere million a year, I will enable graft, and run any company of your choice into the ground.

 

[Viki Ai]

Good management is worth paying good money for, but I very much doubt that any manager anywhere in the world is proving more than $1M a year in actual value to their organisation, and even that figure would have to be a pretty extreme case!

The only thing more looney than the high-end of modern corporate salaries is the people who honestly think they are a justified use of valuable capital.

 

[quamquam quid loquor]

Do stock options count? Asking the real questions here.

Yes, stock options do count. I just added a sentence to clarify that and a link to the source where you can see that pay is defined pretty broadly: https://sfelections.sfgov.org/sites/def ... Pay_LT.pdf

Defined as compensation, you can see that there is an easy way to solve for this by issuing a special class of convertible bonds that the executives can invest in and transforms into equity/equity options. The IRS will still get their money, but it seems it will solve for the SF tax.

 

[stine]

Unless they've written this very carefully to close all the loopholes that a CEO can earn "no salary" but actually be paid millions and have a giant golden parachute, it's barely going to make a difference. Does anyone have the ability to tell if this is the case?

Let’s pretend your loophole closed fantasy is real. What happens next?

Yep, no more executives in San Francisco. You will have successfully taxed them right out of your jurisdiction.

I wonder if the taxers will cry at that point or rejoice at how even the income is in their economic wasteland of 100% minimum wage jobs.

Not really, businesses will simply pay the tax.

Its 2020. Do you still believe that businesses pay tax? They don't. Their customers pay it for them in the form of increased prices.

 

[Stern]

This seems like a great way to get companies to relocate. It's not like California isn't already a mess of high taxes and anti-business laws, just keep pushing, eventually they will leave.

I think a lot of San Franciscans would be just fine with that.

 

[TheFu]

Seems like they should use the 100x more than the lowest wage location that the company has in the world, so all the outsourcing to places with 1/10th cost of living have personal impacts on the executives.

Why limit it to just CEOs? All director-level and above should be included. All contractors need to be included too.

Total compensation, not just salaries. Be certain to include deferred compensation as well. Those golden parachutes cost real money too.

I haven't kept up, but doesn't the US tax code penalize salaries over $1M/yr?

 

[mikesmith]

Unless they've written this very carefully to close all the loopholes that a CEO can earn "no salary" but actually be paid millions and have a giant golden parachute, it's barely going to make a difference. Does anyone have the ability to tell if this is the case?

Let’s pretend your loophole closed fantasy is real. What happens next?

Yep, no more executives in San Francisco. You will have successfully taxed them right out of your jurisdiction.

I wonder if the taxers will cry at that point or rejoice at how even the income is in their economic wasteland of 100% minimum wage jobs.

Not really, businesses will simply pay the tax.

Its 2020. Do you still believe that businesses pay tax? They don't. Their customers pay it for them in the form of increased prices.

Ooooh! Ooooh! Do the one where you say government can't create jobs and then tell us that regulations destroy business investment!

 

[art_haali]

Doesn't the EU already have something along these lines?

From what I understood by 5min googling, EU companies are required to provide such metrics (like CEO vs worker ratio, etc.). Also, maybe (at least this was the plan in 2014), shareholders can limit CEO bonuses:
https://money.cnn.com/2014/04/09/news/e ... index.html
But I don't know if it was actually implemented and if shareholder do actually limit their CEOs' salaries.

There is this directive about CEO's salaries and shareholders, but I didn't read it carefully:
https://eur-lex.europa.eu/legal-content ... 32017L0828


ps: edit: provided the link to the directive, removed my "opinion".