7 ms·
This raises some interesting questions / side effects: 1) Companies may now have a direct incentive to have their lowest income earners be outsourced/contracte
by cody3222 6y ago
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.
- colordrops 6y agoCEOs are all just going to move out of San Francisco.
- Alupis 6y agoAnd/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.
- vmception 6y agoThat’s because the “mostest wokest” dont live in SF long enough to be bothered by the consequences of their votes.
- dicroce 6y agoPeople in San Francisco have long been angry at tech workers for driving up prices... Driving them out may be on purpose!
- thorwasdfasdf 6y agogetting 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.
- vlovich123 6y agoIsn’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)
- bluGill 6y agoOnly 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)
- throwaway2245 6y agoI 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.
- dpoochieni 6y agoThen they will realize the majority of landlords already don't live there: domestic and foreign investors.
- ljm 6y agoMaybe not a bad thing really
- rglullis 6y agoYeah, let the city collect taxes from all the woke millenials who are neck-deep in student debt and the homeless...
- ljm 6y agoOr, 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.
- stevehawk 6y agoand 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.
- rglullis 6y agoNot 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...
- dpoochieni 6y agoHow naive to think salaries are not paid out of that wealth
- dtech 6y agoIt'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?
- dragonwriter 6y agoThe 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.
- shuckles 6y agoThe tax doesn't care about where the CEO lives. It applies to any company that does business in San Francisco which has a CEO that meets the criteria.
- bradlys 6y agoAnd 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.
- shuckles 6y agoThe 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.
- bradlys 6y agoI'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.
- gwright 6y agoThat 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...
- diebeforei485 6y agoThe 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.
- sethammons 6y agoor 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.
- dylan604 6y agoI see the headlines now: Darling Startup Raises $20 million Series-A As First CEO-less Company
- lotsofpulp 6y agoThere are rules such as Common Ownership or Common Control that prevent that kind of avoidance. I'm sure SF can come up with something similar. https://www.law.cornell.edu/cfr/text/26/1.414(c)-4 https://www.law.cornell.edu/cfr/text/26/1.414(c)-4 https://healthcareexchange.com/article/common-ownership-what-are-rules https://healthcareexchange.com/article/common-ownership-what... http://wkins.com/aca-common-ownership-rules-explained/ http://wkins.com/aca-common-ownership-rules-explained/
- elevenoh 6y agoI wonder whether blocking any/all avoidance of this tax truly* what they want though.
- heavyset_go 6y agoNo 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.
- gwright 6y agoHaven'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.
- dragonwriter 6y ago> CEOs are all just going to move out of San Francisco. Doesn't help at all to move high-paying managers out of SF the way this is structured. Moving low-payed workers out of SF while keeping high-paid workers in SF, OTOH.
- throwaway2245 6y ago> 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?)
- cody3222 6y agoI 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."
- throwaway2245 6y agoI created a salary distribution as an example, with 30% of employees at half the median pay, that get "outsourced": 1 1 1 2 2 2 2 3 6 60 median moves: 2 to 2 (+0%) mean moves: 8 to 11 (+72%) (You can make your own example.) Usually, you expect the median to be pretty stable when you remove (or add) outliers. That's often the reason it's used in formal statistics.
- thebean11 6y ago2 is true of most forms of taxes though, although I agree this will likely add even more volatility to revenues
- xg15 6y ago1) 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?
- cody3222 6y agoLike janitors, yes. However you can still go a level up, perhaps to support people. And then another level up, like to entry level sales people.
- xg15 6y agoThen why didn't they already do that before?
- gameman144 6y agoPresumably 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.
- noobermin 6y agoWe can stop the thread here, it's like bleating about the minimum wage or child labor laws, rich people crying that they have to cough up.
- paul_f 6y agoHow 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?