Glad to see this as an East Bay resident. Here's hoping it helps the already-existing trend of more tech companies moving across the bay ;-) Or, maybe the San Francisco companies will just fire their low-paid workers or shift them to being employed by a subsidiary to avoid this tax.
It's funny how San Francisco often seems to be both the home of the US tech industry, and the home of opposition to the US tech industry.
It's not like the opposition to the coal industry comes from Appalachia, or the opposition to the tobacco industry comes from North Carolina, or the opposition to gasoline-powered cars comes from Detroit. My mental model is that industries form clusters, the towns around them support their industries, and opposition comes from elsewhere. But it seems like it doesn't work that way for the tech industry.
Its sad that people don't understand economics. Microsoft CEO Satya Nadella for example has created tremendous value for Microsoft over the last 6 years and deserves every penny he is paid.
Whereas on the other end its kinda a no-brainer that the McDonalds CEO is paid significantly more than the average fry cook... like come-on. Again a reason I am never going back. This city is a piece of shit. Good luck with the exodus.
You're not wrong. But neither of those examples justify less than 3% compared to the lowest workers (assuming lowest = $30,000, and highest = $1,000,000). In reality the highest paid executives earn waay more then 1 million. This isn't okay.
hypothetically, at a certain point you pay an employee (the costs) should be equal to their value they bring to the company (the benefits)
in the usual economic sense, you keep paying until it hits the exact costs, you don't pay too much and you don't pay too little.
Now lets think of a two kind of counter factual worlds and think of which is worse for the firm.
1. CEO disappears from the company, that marginal benefit is lost and the costs disappear.
2. Where a "Low Level" employee disappears.
I don't know the answer for which one is worse for the firm, but World 2 sort of actually happened when Corona started. "low level" employees with very little costs started to disappear and it turns out the value of these employees was much more than their costs - as shown by how badly the economy tanked from these people not being able to work. That is, it seems the value these employees bring is quite high compared to their costs... yet for some reason they are paid much less. And from just a general economic sense, that seems not okay to pay too little.
Most of the arguments against high CEO wages seem to completely forget about the capitalism we live in. I do not think the current system is the perfect, but for better or worse, the rules are relatively simple. To say that CEOs earn too much is a sign of double standards.
CEOs are chosen by private companies using their hard earned money from a market of CEOs governed by supply and demand. Companies are always out to cut costs, and that applies to CEOs.
You may not find it morally sound, but to blankly say "CEOs have to earn X amount" is really hypocritical.
FIW, Quite a few economists have looked into this, and there is at best no, and at worst an inverse, correlation between value creation and CEO pay. Some of the highest-paid CEOs in America head slow-growth or even unprofitable companies.
Most of the legend of Nadella seems to be how much better he is than his predecessor. Has Nadella been paid significantly more than Balmer was paid? If not, this is a poor argument in support of the excess pay.
I’m confused. What’s to stop these orgs from shuttling all their lower paid employees into a distinct staffing solutions LLC and just use them to “hire” staff for a parent company comprised of executives?
Other fields do this regularly - hospitals often organize their physicians into a distinct staffing org, for instance. It’s entirely legal. So is this anything other than a feel good law that will push some minor corporate restructuring?
Is the legal system really so inflexible that it can’t prohibit this using general statements? Do you really need a 10 page long comma separated list of every possible situation?
> Is the legal system really so inflexible that it can’t prohibit this using general statements?
> Yes.
That's not correct, although it doesn't seem like it to everyone because there is so much abuse. Intent matters. Lots of cases have been brought against abuses to circumvent existing laws, which have been successfully litigated.
Any hospital that does that for doctors is probably a bad one.. no way the doctors would sign on to a bad deal like that. Nurses however always get a raw deal.
The way GAAP tackles shams like that is "consolidation". [1] For example, you report wholly owned subsidiaries as if they are part of the parent organization.
Clearly, accountants and lawyers can engage in fuckery as they did at Enron. But the law is fully capable of calling out a sham, even it it has recently become reluctant to do so.
Other fields do this regularly - hospitals often organize their physicians into a distinct staffing org, for instance.
Hospitals do this in the opposite direction. If you're in the suburbs a metro area (where cost indexes are higher, so Medicare reimburses at a higher rate), you try to make your own expenses look higher to convince CMS to include your hospital into the same cost index as the metro area itself. One tool to do this is to separate out unskilled workers (housekeeping and the like) into a separate corporation, thus moving the average pay rate higher.
Source: wife managed Medicare and Budget at a large hospital just outside of the NYC area, and did exactly this.
This is going to have unintended consequences. Chances are it brings in a trickle of revenue and triggers silly behaviour rather than making anyone better off.
Social engineering seems to be a fragile idea because humans are amazing at optimizing in favor of their own interests. Taxes as a form of revenue seem to work better than taxes as a force for manipulation.
Taxes work beautifully as an incentive by changing people's utility gradient. "Don't smoke if you want to raise your utility!" "Don't drive a gas-burning car if you want to raise your utility!"
I suspect that taxes work less well when the whole point is to lower people's utility. "Lower your utility or we'll do it for you!"
Company A and Company B pay their CEOs the same thing. Company A has 1000 employees and pays an average salary of $50k/yr. Company B has 500 employees and pays an average salary of $100k/yr. Company A is taxed, but Company B is not. Is that fair?
>extra tax on any big company that pays its highest-paid employee over 100 times more than its median worker
Small nit, but the law evokes measuring against the median wage not the average.
Besides that, from the wording of the article it seems like they have a different goal than your argument. Your post reads as if they should be optimizing for the number of employees rather than more pay equity.
Can you explain a bit more on what you are alluding to? This new law is not related to employee count (i.e. the size of the firm). It takes into account the median salary at the firm AND how much the CEO makes. I'm trying to understand what you are trying to argue here.
"ideology" needs to be rehabilitated as less pejorative — in our era of empiricism devolved into mindless statistics, the desire to fit everything into a coherent theoretical framework needs a better rep.
"Virtue signaling" is a phrase with no good connotation to corrode, and one I'd prefer for the critiwue I believe you are trying to make.
If I were trying to make a critique, sir, I'd be making it. I'm just urging another poster applying a more appropriate I-word that doesn't cast aspersions on intelligence, when the conflict is about a world view bundled with a set of values and policy prescriptions.
There may be a reasonable argument to be made concerning the difference between the two approaches, but you've portrayed yourself as unreceptive from word one.
It's a little unclear to me exactly who this will be enforced on (Does a drugstore count? McDonalds restaurant?), but it seems like it will likely lead to a lot of companies divesting themselves of anything that could put them at risk now or in the future. And it doesn't seem like a great time for SF to be pushing companies away.
It's downright impressive to me that one of (if not the most) educated cities in the nation is ignorant of the fact this will likely do much more harm than good in the long run.
> San Francisco is one of the most desirable cities in the United States for companies to be located.
You're only the prettiest girl at the party until you're not anymore.
"It's downright impressive to me that one of (if not the most) educated cities in the nation is ignorant of the fact this will likely do much more harm than good in the long run."
Never underestimate the ability of emotional responses to trump rationality across all demographic groups.
This is one of those things thats seems right as a principle, but really questionable as legislation.
On on hand, using median salary rather than an absolute amount seems fair, but in practice, this will most likely result in firms creating subsidiaries to employ their lowest-paid employees rather than raising their pay.
“businesses in San Francisco when their highest-paid managerial employee earns more than 100 times the median compensation paid to their employees in San Francisco.“
I'm slightly concerned that you are going to see them just shift jobs out of SF... isn't that logical? May be harder for some businesses, but they will all do a cost-benefit analysis of raising median wages in SF, paying the tax or moving the SF jobs somewhere else?
I think you can't pay the executive less... the executives that land in this level of pay are paid based on what they could get at another company (that is not based in SF... there are not really cost-of-living adjustments at this level...), speaking generally and in broad strokes. So you shouldn't see any changes to the top end of the equation (which isn't want they are going for... they are going for raising the less paid workers' wages, so they did that right.)
Reminds me of an old Soviet joke. The government made vodka more expensive, so son walks up to his alcoholic dad and says, "Gorbachev made vodka more expensive, dad, so you'll now drink less!" To which dad responds, "No, son, you'll just eat less".
The CEOs that don't move out of SF will just reallocate some employee promo budget to executive comp budget to make up the difference. It's a populist measure that at best will do nothing, and at worst will reduce the SF tax base.
Unfortunately, this hits companies from the wrong direction. Even if it incentives good behavior (which is debatable), the good behavior it incentivizes is to lower one person's enormous compensation so that it's slightly less enormous but still quite large.
What the law should promote is upward pressure on the lowest earners' compensation rather than downward pressure on the top earners' compensation. Minimum wage hike, for example. Much greater potential to improve the lives of the lowest-paid workers; businesses often threaten to compensate via layoffs but usually don't follow through, at least not enough to completely offset the change.
Well it might help upward pressure (though I'm skeptical) because for every $1k more a year in median income, a CEO can pay themselves an addition $99,000 without running afoul of this law.
Oh, I'm not saying it would be cheap. The larger the company, the more expensive. But if a CEO can make an extra ~$100,000 of their own money by spending a few $million of someone else's money, at the same time that they can claim it's all some sort of virtuous act, then I think that's a deal some of them will make.
Much greater potential to improve the lives of the lowest-paid workers; businesses often threaten to compensate via layoffs but usually don't follow through
The effects come in through other means besides layoffs. The businesses still have to make up those expenses somehow, and non-monetary compensation is a primary target. If the government is telling businesses that it must provide greater monetary compensation, then they'll compensate by offering less non-monetary. This will happen through measures like eliminating training programs that could help employees get off that bottom rung; or eliminating flexible scheduling that, say, a single mom might need to attend to her kid's needs. Essentially, there are many form.
Long term, there are more negative consequences to minimum wage than you can count through just disemployment effects, which are already keeping the very lowest rung of people unemployed.
This measure [1] is either on gross receipts or on payroll. Seems kinda steep if you have a large revenue but high costs. Apparently this would affect the likes of Gap, Levi's, Wells Fargo, Square, Visa etc [2]. It's not super easy to check who pays the Administrative Office Tax (payroll) and who currently pays the Gross Receipts Tax.
Assuming everyone is paying the gross receipts tax, however, the 0.1% more on gross receipts (0.2% if CEO is paid 200x the median, 0.3% if 300x etc up to 0.6%) can add up quick over a few years.
Visa isn't HQ'd in SF (so they would be paying the Gross Receipts Tax?), but their revenue was 23 billion last year. 0.1% of that is $23 million. If that is true, do they just shutter the SF offices? Can they still do business in SF?
Wells Fargo has $85 billion of revenue last year, so 0.1% would be $85 million. They are HQ'd in SF, so they would be paying the payroll part. I don't have the numbers handy there but I bet it's not cheap either.
Since this applies to public and private companies alike, it seems like a no-brainer that more companies will follow in Stripe's footsteps and move their headquarters to other places in the Bay Area (or Colorado like Palantir lol, though they were never in SF).
Those positions don't work the way people think they do. Some CEOs have to spend obscene amounts of money defending themselves from frivolous lawsuits and people constantly screwing around with their lives. You should be looking to see how much the CEO is actually keeping, not how much they are making.
Please provide a reference. It is customary for the company to purchase Directors and Officers insurance which covers litigation and liability for CEOs and often other executives.
I wasn't aware that was done for all CEOs. You still have to consider the idea that many CEOs have to deal with an array of problems in their personal lives that other people don't have to deal with. I mention that with the caveat that the level of problems other people bring to their personal lives in order to create distractions is cultural.
Why is it up to the government to determine how companies pay their employees? I get they can tax individuals and companies, but now they tax your pay structure?
61 comments
[ 2.3 ms ] story [ 101 ms ] threadIt's funny how San Francisco often seems to be both the home of the US tech industry, and the home of opposition to the US tech industry.
Whereas on the other end its kinda a no-brainer that the McDonalds CEO is paid significantly more than the average fry cook... like come-on. Again a reason I am never going back. This city is a piece of shit. Good luck with the exodus.
If he produces more than 100x the value that others produce, it's perfectly ok.
Nadella and Steve Jobs are obvious examples of the tremendous value a CEO can bring.
Why not?
in the usual economic sense, you keep paying until it hits the exact costs, you don't pay too much and you don't pay too little.
Now lets think of a two kind of counter factual worlds and think of which is worse for the firm.
1. CEO disappears from the company, that marginal benefit is lost and the costs disappear.
2. Where a "Low Level" employee disappears.
I don't know the answer for which one is worse for the firm, but World 2 sort of actually happened when Corona started. "low level" employees with very little costs started to disappear and it turns out the value of these employees was much more than their costs - as shown by how badly the economy tanked from these people not being able to work. That is, it seems the value these employees bring is quite high compared to their costs... yet for some reason they are paid much less. And from just a general economic sense, that seems not okay to pay too little.
Most of the arguments against high CEO wages seem to completely forget about the capitalism we live in. I do not think the current system is the perfect, but for better or worse, the rules are relatively simple. To say that CEOs earn too much is a sign of double standards.
CEOs are chosen by private companies using their hard earned money from a market of CEOs governed by supply and demand. Companies are always out to cut costs, and that applies to CEOs.
You may not find it morally sound, but to blankly say "CEOs have to earn X amount" is really hypocritical.
That is literally absurd, as it would mean the theoretical company would have literally no benefit from said theoretical employee(s).
FIW, Quite a few economists have looked into this, and there is at best no, and at worst an inverse, correlation between value creation and CEO pay. Some of the highest-paid CEOs in America head slow-growth or even unprofitable companies.
Other fields do this regularly - hospitals often organize their physicians into a distinct staffing org, for instance. It’s entirely legal. So is this anything other than a feel good law that will push some minor corporate restructuring?
FYI, this is already a common practice.
Yes.
> Do you really need a 10 page long comma separated list of every possible situation?
Yes.
> Yes.
That's not correct, although it doesn't seem like it to everyone because there is so much abuse. Intent matters. Lots of cases have been brought against abuses to circumvent existing laws, which have been successfully litigated.
Clearly, accountants and lawyers can engage in fuckery as they did at Enron. But the law is fully capable of calling out a sham, even it it has recently become reluctant to do so.
[1] https://www.pwc.com/us/en/cfodirect/publications/accounting-...
Hospitals do this in the opposite direction. If you're in the suburbs a metro area (where cost indexes are higher, so Medicare reimburses at a higher rate), you try to make your own expenses look higher to convince CMS to include your hospital into the same cost index as the metro area itself. One tool to do this is to separate out unskilled workers (housekeeping and the like) into a separate corporation, thus moving the average pay rate higher.
Source: wife managed Medicare and Budget at a large hospital just outside of the NYC area, and did exactly this.
I suspect that taxes work less well when the whole point is to lower people's utility. "Lower your utility or we'll do it for you!"
Small nit, but the law evokes measuring against the median wage not the average.
Besides that, from the wording of the article it seems like they have a different goal than your argument. Your post reads as if they should be optimizing for the number of employees rather than more pay equity.
This pairs hilariously with Prop 22 making all Uber's low wage employees non-employees.
"Virtue signaling" is a phrase with no good connotation to corrode, and one I'd prefer for the critiwue I believe you are trying to make.
It's downright impressive to me that one of (if not the most) educated cities in the nation is ignorant of the fact this will likely do much more harm than good in the long run.
> San Francisco is one of the most desirable cities in the United States for companies to be located.
You're only the prettiest girl at the party until you're not anymore.
Never underestimate the ability of emotional responses to trump rationality across all demographic groups.
On on hand, using median salary rather than an absolute amount seems fair, but in practice, this will most likely result in firms creating subsidiaries to employ their lowest-paid employees rather than raising their pay.
I'm slightly concerned that you are going to see them just shift jobs out of SF... isn't that logical? May be harder for some businesses, but they will all do a cost-benefit analysis of raising median wages in SF, paying the tax or moving the SF jobs somewhere else?
I think you can't pay the executive less... the executives that land in this level of pay are paid based on what they could get at another company (that is not based in SF... there are not really cost-of-living adjustments at this level...), speaking generally and in broad strokes. So you shouldn't see any changes to the top end of the equation (which isn't want they are going for... they are going for raising the less paid workers' wages, so they did that right.)
The CEOs that don't move out of SF will just reallocate some employee promo budget to executive comp budget to make up the difference. It's a populist measure that at best will do nothing, and at worst will reduce the SF tax base.
What the law should promote is upward pressure on the lowest earners' compensation rather than downward pressure on the top earners' compensation. Minimum wage hike, for example. Much greater potential to improve the lives of the lowest-paid workers; businesses often threaten to compensate via layoffs but usually don't follow through, at least not enough to completely offset the change.
The effects come in through other means besides layoffs. The businesses still have to make up those expenses somehow, and non-monetary compensation is a primary target. If the government is telling businesses that it must provide greater monetary compensation, then they'll compensate by offering less non-monetary. This will happen through measures like eliminating training programs that could help employees get off that bottom rung; or eliminating flexible scheduling that, say, a single mom might need to attend to her kid's needs. Essentially, there are many form.
Long term, there are more negative consequences to minimum wage than you can count through just disemployment effects, which are already keeping the very lowest rung of people unemployed.
Assuming everyone is paying the gross receipts tax, however, the 0.1% more on gross receipts (0.2% if CEO is paid 200x the median, 0.3% if 300x etc up to 0.6%) can add up quick over a few years.
Visa isn't HQ'd in SF (so they would be paying the Gross Receipts Tax?), but their revenue was 23 billion last year. 0.1% of that is $23 million. If that is true, do they just shutter the SF offices? Can they still do business in SF?
Wells Fargo has $85 billion of revenue last year, so 0.1% would be $85 million. They are HQ'd in SF, so they would be paying the payroll part. I don't have the numbers handy there but I bet it's not cheap either.
Since this applies to public and private companies alike, it seems like a no-brainer that more companies will follow in Stripe's footsteps and move their headquarters to other places in the Bay Area (or Colorado like Palantir lol, though they were never in SF).
1: https://ballotpedia.org/San_Francisco,_California,_Propositi...
2: https://calmatters.org/california-divide/2020/10/san-francis...
Edited: grammar