The Advisors' Blog

– Lynn Jokela

In August, I blogged about the San Francisco ballot initiative – Proposition L – that would impose a tax on companies doing business in the city if a company’s highest paid employee earns 100x more than the company’s average San Francisco worker.  The city’s vote totals show that the law has passed – here’s the full text of the measure.  Under the law, the tax increases as the pay ratio increases.  Here’s an excerpt from ABC News on the new law:

Under the new law, any company that pays its top executive 100 times more than their average worker will pay an extra 0.1% surcharge on its annual business tax payment. If a CEO makes 200 times more than the average employee, the surcharge increases to 0.2%; 300 times gets a 0.3% surcharge and so on.

Some fear the new tax will drive some businesses out of the city but San Francisco City Supervisor, Matt Haney, said the tax is modest compared to the cost for a company to move.  He hopes the tax will lead companies to re-examine their compensation structures.

Questions remain about the new law though as it doesn’t define how compensation will be determined – so there’s more to understand before businesses can understand how this will impact them.  The text of the law says it becomes operative on January 1, 2022 and ABC News says that the law is expected to generate between $60 million to $140 million per year.