
California wants to tax companies for executive pay ratio - onetimemanytime
https://www.foxbusiness.com/money/california-ceo-pay-chief-executive-compensation
======
stickfigure
This is just so... weird. The obvious unintended consequence is to _fire the
lowest-paid workers_. Outsource it to contractors, automate, whatever. Why
does the _ratio_ matter?

If you want to redistribute wealth, do it the honest way that doesn't distort
markets. Take it from rich people and give it to poor people!

~~~
njarboe
The problem is that under the current tax scheme in the US people are taxed on
their total income and companies are taxed on their profits. This is a huge
difference. So rich people, who can have companies do what they want, get
taxed very little and people, with just income, get taxed a lot. I think if we
could just get rid of the income tax somehow (like have a land tax instead)
the country would be so much better off. You could just work for whoever you
wanted without any paper work and people could just pay you. Rich people would
have no need to create all of these companies and foundations. Everything
would be much more free and efficient.

~~~
justnotworthit
You may be a fan of replacing the income tax with a consumption tax.

[https://en.wikipedia.org/wiki/Consumption_tax](https://en.wikipedia.org/wiki/Consumption_tax)

~~~
NullPrefix
Wealthy people don't consume more goods than average people.

~~~
AdrianB1
They don't consume more goods, they consume goods of much higher value (ex:
luxury items and fine cuisine) and services so in the end they will pay much
more taxes. What else do you think they spend the money on, if not goods and
services?

~~~
rorykoehler
Equities (stocks), fixed Income (bonds), real estate, commodities, futures and
other financial derivatives mainly. Basically they spend their money on
investments.

~~~
AdrianB1
Spend and invest in the same sentence: not good.

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arkadiyt
Wealth inequality is real and I think it's good to have some sort of pushback
on it, pay ratio caps or otherwise. At the same time California is so stupidly
dysfunctional that I don't think they deserve any more tax revenue - San
Francisco alone had a higher budget in 2019 ($12 billion) than 13 entire
states, yet absolutely nothing gets done.

~~~
brett-jackson
What's the point in capping CEO pay? It won't lift anyone out of poverty.

~~~
newguy1234
It is purely ideological. Truth be told, there are major differences between a
good CEO and a bad one.

~~~
citrablue
What are the differences between good and bad CEOs? From my vantage, companies
sure seem to be awful at identifying these before hiring someone...

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gnicholas
I can't find details on this bill, but as a former tax lawyer, I am wondering
about these issues:

• Are contractors counted as employees? If not, then companies would have an
incentive to keep low-paid workers as contractors instead of employees.

• How is stock-based compensation, or other incentive-based compensation,
treated? Executives are compensated largely with variable compensation like
this in order to align their incentives (at least in the short run) with the
company's. I could see SBC being exempted from this calculation, which would
render the bill largely meaningless. For example, Steve Jobs took $1 in salary
for many years.

• What about stock previously owned by the executives? That is, Mark
Zuckerberg owns a ton of FB stock, so any income he receives via capital gains
or dividends is not tied to his role as CEO. Presumably these are not counted?

~~~
dweekly
It may be worth noting that as of two weeks ago AB5 makes the "just
recharacterize your employees as contractors" play much more difficult.

~~~
amluto
I'm not sure this is relevant. You can bring in an outside company as a
contractor, and that company can have employees that effectively work for you
but aren't employed _by you_.

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human_banana
"Hey, lower paid employees you're fied, but now you now work for FooBar
Services, and we've hired FooBar to do the work you're currently doing."

Thus lowering their ration and tax obligations.

These jealousy based taxes are insane and have to stop.

~~~
ummonk
Pretty much. This will exacerbate the practice of hiring high paid white
collar workers directly while contracting out to staffing firms for low paid
positions.

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WalterBright
California already taxes the company profits and the salaries of the
executives.

~~~
gnicholas
True, although this would also capture revenue from companies whose executives
don't live in CA, and therefore pay no taxes there. This actually raises an
interesting constitutionality argument — it's arguably an indirect tax on the
income that would have been paid to a non-resident executive. Sounds sort of
like taxation without representation, but this is probably too much of a
stretch. (I used to be a tax lawyer.)

------
refurb
Maybe it’s just me, but California’s future seems to be echoing New Jersey’s.

Wealthy state, high tech industry (there was lots of Pharma in NJ). State
starts to get really onerous on business, businesses start leaving, state goes
into the toilet.

~~~
rayiner
It could happen. Remember, Silicon Valley was founded in California when the
state was solidly Republican.

~~~
newguy1234
Also many other states are starting to have "tech hubs" as well like Austin
and Nashville so one would expect the allure of the bay area is going to
decline overtime.

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meddlepal
As a non California resident I love the idea of California making itself more
business unfriendly.

~~~
ravenstine
Something tells me other states won't be happy with more California expats
coming to vote in their elections.

~~~
Mirioron
Makes sense though. If Californians created a mess in California then people
from other states are probably suspicious of those Californians moving to
their state lest they create a similar mess there.

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seibelj
There is a popular argument being made that any amount of inequality is evil
and must be stamped out. I’ve asked several people to define in logical terms
the line beneath which someone is not evil, and above which they are an evil
rich person taking too many resources.

There is no logical explanation for such a line, it’s always an emotion
against people who have more than them. Everyone always compares themselves to
someone richer, whether they make 15k, 150k, or 1.5m. If you keep voting for
such policies, you will eventually outlaw anyone for trying to do anything but
living on government dole. It’s a sad future some people want. Venezuela
collapsed rather quickly.

~~~
ummonk
I mean if you take the income inequality argument and apply it to the world it
is clear that pretty much every person in a developed country is an evil rich
person taking too many resources.

~~~
AngryData
You gotta factor in cost of living though too. Someone in a crappy part of the
world might live on $2 a day, but regardless of where or how you live in the
US that would never keep you alive or a roof over your head where there it
might, even if it is crappy.

~~~
Mirioron
Why not? Is it impossible to survive in a forest in the US through hunting and
gathering? Because that's exactly how our ancestors lived long ago. The people
living on $2 a day in the poorest parts of the world are essentially living on
that level of wealth. They don't buy most of their goods, they make them.

Go check out primitive technology on YouTube and see the stuff he does in a
forest. That kind of stuff is available almost anywhere with a temperate
forest.

The cost of living is higher in the US because people expect better stuff and
they've put a limit on how low the quality can go. Eg building permits and
other housing regulations. All of that significantly increases the cost of
housing, but it also makes your minimum housing much better than in poor parts
of the world.

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tropo
Executive pay ratio is mostly determined by the size of the company. We have
allowed mergers and more mergers, even ignoring monopoly concerns, creating
huge companies.

Think of the corporate structure tree, with perhaps 5 to 15 people reporting
to each manager. In a large company, there are many individual contributors
per executive. With those numbers, total executive pay is not a large portion
of total employee pay. This is what makes extremely high executive pay
possible.

The fix is simple in concept, but politically difficult. Break up huge
companies into smaller companies.

~~~
dehrmann
> Executive pay ratio is mostly determined by the size of the company

At least executive pay is. Amazon and Google have different ratios because
Amazon has warehouse workers. Executive to worker pay ratios are more
interesting in aggregate.

> The fix is simple in concept...

Companies age out and split themselves up on their own enough that it's
probably better to just be a lot more restrictive on mergers. My fear with
breakups is they can be somewhat silly. Breaking up AT&T just created regional
monopolies and split local and long-distance. In the era of cell phones, this
just looks weird.

You're also falling victim to Goodhart's law. Worrying about how much the 500
best-paid executives make doesn't explain why overall wages aren't rising, and
that's what we should care about.

But I completely agree that company size and executive compensation are
correlated, and it's an observation people don't bring up a lot. This ratio
might be a better indicator of the size of companies than actual inequality.

~~~
tropo
Overall wages are rising, particularly at the low end. Wages are growing at
about a 3.7% annual pace.

Income inequality is dropping too. The share of income earned by the top
quintile has dropped, and this shows in the Gini coefficient.

The above is to be expected based on unemployment numbers. For the first time
ever, there are more job openings than people seeking jobs. This has come
about because imports have been replaced by domestic goods (the tariffs
helped) and because there are fewer immigrants to drive down the cost of
labor.

~~~
AdrianB1
I've seen this happening in some countries, the result was the disappearance
of the middle class: the minimum wage was pushed up until it got close to the
median, now people are closer and closer to the minimum wage. Imagine minimum
wage is 50 units and median is 100, if you grow minimum to 70-80, but you
cannot increase the median (because the market does not support all the
raises), then the former middle class is now close to lower class; as you
increase the minimum wage, this creates inflation and makes purchasing power
of the middle class even lower, so in the end you get it transformed in an
upper poor class.

------
badrabbit
Taxation as a punishment or as a way to stop people from doing something is
does not work.

One main reason: People actually pay the tax. So now, the government has an
additional revenue stream, they villify the thing being taxed just enough to
justify the tax but they still want the revenue stream.

Fossil fuel tax? Cigarette tax? Alcohol tax? Look at app the things people
have stopped using/doing...

The Cobra effect is the term used to describe this logical fallacy. [1]

When you tax something, you are giving it legitimacy. You're saying:"Not only
is this activity legitimate and socially acceptable, for the right to enjoy
this activity, you need to pay the government that is enabling you to enjoy
this right"

Solutions:

1) Make a law that lets employees sue companies (class action),where the
executive pay gap relative to cost of living and value of skill/work (things
the plantiff has to prove) can be used to estimate lost wages

2) Make it a felony (wage theft). Provided, the standard of living for any
employee (or employees of contractors and vendors) fail to make an income that
is N% lower than any other employee/exec.

[1]
[https://en.m.wikipedia.org/wiki/Cobra_effect](https://en.m.wikipedia.org/wiki/Cobra_effect)

~~~
Ericson2314
I'm sorry the Cobra effect is literally the exact opposite of s punative tax.
In that case the British _spent_ money, here the government _raises_ money.

This whole "giving legitimacy" argument is why we have a war and drugs without
needle exchanges. It's terrible counterproductive puritsanism that's been
debunked countless times and cost thousands of lives.

Now, it is possible for governments to rely on punitive taxes in twisted ways,
but this tends to be on the local level, small towns with harassing police
forces. I would worry less in a huge rich state with many revenue streams.

~~~
badrabbit
In this case corporations are spending money instead of the government. Who
spends money changed but the fact that an incentive to continue bad behavior
is implemented is the same (and the whole point of the cobra effect). In this
case the california government becomes enabler of the wage gap, the incentive
is tax revenue.

What does the war on drugs have to do with this? Do you think taxing drugs is
a solution? Why not legalize it without any tax, if it is harmful, require
people to take it under medical supervision where they can get help with the
real cause (if they choose to). That's such a straw man argument.

It's not just "poor" states that rely on taxes as revenue. Granted a small
revenue stream has little power, but in this case not only would the revenue
not be small but even if it was, large states are operated like large corps,
this means no revenue stream is too small, it should at least be enough to
cover for enforcement costs. Laws are meaningless without enforcement. If
they're willing to pay the tax,guess what happens? Politicians start making
unrelates promises counting on this revenue.

Bottom line, taxation is a means of revenue for a government. It is not a way
of punishing people, you can't and shouldn't make punishment profitable for
the punisher. That is a recipe for injustice. But if you do go ahead with
this, the revenue should be used strictly for enforcement costs and to remedy
the situatuon (in this case directly to the pocket of low level employees).

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foogazi
How does more corporate taxes help raise people’s wealth levels?

~~~
newguy1234
People are expecting the taxes to fund welfare programs.

~~~
AdrianB1
Welfare programs don't increase wealth, they just (barely) keep some people
afloat. Don't give them a fish, teach them to fish.

------
RickJWagner
It's not right to penalize only C-suite employees. For instance, lots of
actors and entertainers in California make tons of money, and they're
notoriously hypocritical about social issues. (i.e. flying in a private jet or
living in a constantly-irrigated oaisis, but still pontificating about climate
change).

If the proposed law taxed the snot out of every company with very highly
compensated employees I think it'd be more fair.

------
m0zg
I actually lived under the end state of this process: the Soviet Union. There
_everyone_ worked for the government and made similar money (peanuts).
Janitor? Here's 70 rubles a month. Engineer? Here's your 120 rubles. Run a
factory? Here's 200. No "inequality" woo-hoo! Socialist utopia! Didn't work
too well though.

------
acd
Good with the change in California. I have seen a time trend where upper
management started to get paid $100k per year, then it was $250k per year,
$500k, $1M, $10M.

Then executives started motivating their VP salary with comparison of
executive peers they have $500k so I should also have $500k or higher.

This causes income inequality which causes tensions in society.

In the past these type of income equality would be Kings, Noble men, then we
transitioned to a period of more equality. Now its back again. You could say
Kings and noble men have changed to ->high VP management layer in large
corporations.

I think the term is Feudalism, where the ruling class has changed to VP from
Noble men, Kings. [https://en.wikipedia.org/wiki/Neo-
medievalism](https://en.wikipedia.org/wiki/Neo-medievalism)
[https://en.wikipedia.org/wiki/Feudalism](https://en.wikipedia.org/wiki/Feudalism)

High income inequality tears societies apart, I would advise not to go in that
direction.

In page 5 of this Worldbank paper on income ineqality vs violent crime rate
you can see a plot between inequality Gini coefficient, where a high number
Gini is high inequality and crime rite. High income inequality is linked to
high crime rates.
[https://siteresources.worldbank.org/DEC/Resources/Crime&Ineq...](https://siteresources.worldbank.org/DEC/Resources/Crime&Inequality.pdf)

Gini coefficient of inequality
[https://en.wikipedia.org/wiki/Gini_coefficient](https://en.wikipedia.org/wiki/Gini_coefficient)

------
ummonk
Seems like it's something to incentivize owners (e.g. Abigail Disney) /
founders at the expense of executives? Non-founder executives tend to be
somewhat parasitic leeches / mba types, so I can't say I'd be unhappy with
them getting payed less. That said, this sort of initiative seems to be part
of a pattern of poorly thought out attempts to attack "income inequality".

~~~
onetimemanytime
Probably just another way to raise taxes and bill it as a way to help the
poor. Execs usually get a % of the gains during their rein so they re not
leeches. Disney can also pay a John Doe with a high school diploma to run
Disney for $240K a year. But they'd rather pay $50+ Million for Iger et al
because so far if has paid off.

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herostratus101
I'm all for anything that causes an exodus of companies out of California.

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Trias11
@GavinNewsom must be running out of funds for more hair gel.

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JMTQp8lwXL
Lots of excitement in the comments. Has anyone considered the possibility that
California wants to create the appearance of solving real problems, without
actually solving them? Politics, like social media, contain quite a large
amount of virtue signaling. What places California somewhat uniquely is as its
liberal ethos clashing with moneyed interests. There's the Abigail Disney's
out there, but wealthy egalitarians are vastly outnumbered by wealthy
capitalists who oppose redistribution. As many others have pointed out, there
are potentially obvious workarounds to optimizing for expensive pay ratio.

------
LessDmesg
The key of the matter is that California wants to tax, full stop. The
socialist greenies running the state are neck deep in debt and making new
exorbitant taxes is their only option. No wonder people are fleeing from the
Californian dream in droves!
[https://www.nytimes.com/2020/01/16/us/california-
congression...](https://www.nytimes.com/2020/01/16/us/california-
congressional-seat-census.amp.html)

~~~
dmode
How did the population go up by 2 million of people are leaving in droves ?

~~~
AdrianB1
Let's present a new thing called immigration: people coming from other
countries. When you come from Honduras, even a slum in LA is a step forward,
so people are moving from countries like Honduras to California. How many have
any education, get good jobs and pay taxes is usually ignored because it does
not look good to look in the dirt, you put it under the carpet.

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TheMagicHorsey
California will actually succeed in driving away its wealth-generating
companies at some point. A lot of places will be happy about benefitting from
the exodus. California has way too much concentration of brainy people. We
need to spread them out across the world. These kinds of policies will succeed
in doing that.

------
gremlinsinc
> President Rob Lapsley said the bill would keep companies from coming the
> state.

This is a problem why? California is constantly in a draught. It's resources
are stretched thin. It has housing crises all over the place.. wouldn't
'thinning' the herd or at least slowing business growth there be a good thing
long term?

Why must a place with as many problems as California has in terms of
fire/environment/housing always increase business, when those businesses could
move out to other places bringing more diversity across America. Maybe try
Kansas or Tennessee? I mean if trucking is ever replaced we'll need some good
jobs in the heartland.

