San Francisco now has the highest salaries in the world. Chief executives now earn 320 times as much as a typical worker.
San Francisco (SF) voters overwhelmingly approved the “Overpaid Executive Tax,” formally known as Proposition L, in order to address the growing wage gap between chief executives and workers. The law is believed to be the nation’s first tax aimed at combating pay inequity both in public and private business entities.
Companies with top executives who fall into this category must pay a 0.1 percent surcharge on their annual business taxes. The surcharge increases by 0.1 percent per factor of 100, topping out at 0.6 percent. So top earners making 200 times more than the average worker pay a 0.2 percent tax and so on.
On Tuesday, San Francisco voters embraced this tax at a time when CEO compensation is surging. A study published by the Economic Policy Institute found that chief executive compensation rose 14 percent in 2019 to $21.3 million. Chief executives now earn 320 times as much as a typical worker.
According to the tax’s author, Matt Haney, a member of the city’s Board of Supervisors, the proposition would generate “up to $140 million” that could be used to “support our health and public health systems, which are deeply strained from the consequences of inequality. We will hire nurses, social workers and emergency responders, and expand access and treatment.”
The latest ruling comes amid unprecedented economic downturn due to the pandemic. “Super-sized salaries may well make up for San Francisco’s stratospheric real estate costs”, wrote Deutsche Bank in its report “Mapping the World’s Prices 2019.”
Portland, Oregon has a similar measure passed in 2018 that applies only to publicly held companies. This measure affects both privately and publicly held companies.
The surcharge not only affects large, local firms in SF (a Democratic stronghold which voted for Joe Biden) like Salesforce, but also large corporations that do business in the city, like Visa and J.P. Morgan.