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San Francisco to Propose Pay Ratio Tax

Published on: June 21, 2019

Topics: Executive Pay Plan Design

This November, San Francisco voters will decide whether to add a tax on the gross receipts of businesses whose compensation of the company’s highest paid employee exceeds the median pay of their employees based in the city by a ratio above 100:1.

The ordinance would require public companies to calculate a new pay ratio of the company's "highest paid employee" to the median pay of the company's employees based in the city.

The tax would be based on a sliding scale, with companies with ratios above 100:1 taxed at 0.1%, above 200:1 taxed at 0.2%, and so on to a maximum tax of 0.6% at more than a 600:1 ratio.

Critics of the measure say that highly compensated employees may opt for shareholder returns rather than salary.

The tax income would pay for the establishment of “Mental Health SF,” a universal mental health care program that would provide access to mental health services, substance abuse treatment, and psychiatric medications.

Outlook:  So far, Portland, Oregon is the only jurisdiction to establish a pay ratio tax, but it tops out at 0.25% and is based on the SEC pay ratio.  Pay ratio data is severely limited in measuring year-over-year developments between and even within companies, especially when using median pay as a standard.  Whether San Franciscans will recognize this in November remains to be seen.

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