San Francisco will tax businesses slightly more if a chief executive earns orders of magnitude more than their rank-and-file employees after residents voted in favor of the rule.
Proposition L [PDF], dubbed “the CEO tax,” passed with 65.2 per cent approval this week. Introduced by Matt Haney, a member of the US city's Board of Supervisors, it increase taxes for businesses if the so-called executive pay ratio exceeds 100:1.
Simply put, if the big cheese of any private or public company pockets take-home pay that's 100 times the median salary of their company, it’ll have to pay 0.1 per cent on their gross receipts attributable to San Francisco in extra tax. If the CEO earns 200 times the median amount, the tax goes up to 0.2 per cent, if it’s 300 times more then it goes up again to 0.3 per cent, and so and so forth, all the way up to 0.6 per cent if the ratio is 600:1 or greater.
Smaller businesses and startups netting less than $1.17m in annual revenues will not be targeted. The CEO also has to be earning over $2.8m a year, too.
The fine-print for the changes ensures wages, stock options, bonuses, and tax refunds are all considered part of the CEO's total compensation. That means it’s likely to impact the tech industry, where leaders can make the most money from their stock, and the finance industry, where big bonuses are commonplace. San Francisco is home to both.
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The city reckons it could bag up anywhere from $60m to $140m a year when the measure comes into effect in 2022. The extra money will go toward healthcare. Although the CEO tax may encourage a narrowing of the wealth gap in one of the most expensive cities in America, some fear it could drive businesses away or prevent startups from forming.
Haney, however, believes otherwise. “San Francisco is one of the most desirable cities in the United States for companies to be located in. A small surcharge that can be avoided by simply reinvesting in your workers will have little to no impact on companies that can afford to pay their CEOs millions a year,” his proposition campaign website argued. ®