Shocking inequality: why San Francisco voted for 'overpaid executive tax'

By Rupert Neate

On Matt Haney’s walk to work at San Francisco city hall he passes the luxurious homes of some of the richest US tech billionaires, as well as hundreds of the country’s most desperate people living in tent encampments on the street.

The “extreme, shocking inequality” he and the other 900,000 residents are forced to navigate every day led Haney, a member of the San Francisco Board of Supervisors, the city’s legislative body, to propose a new “overpaid executive tax” designed to help tackle the problem.

San Francisco voters overwhelming backed a new law that will levy an extra 0.1% tax on companies that pay their chief executive more than 100-times the the median of their workforce. The surcharge increases by 0.1 percentage point for each factor of 100 that a CEO is paid above the median, up to a maximum of 0.6%.

Many of the biggest and best-known US companies would easily fall into the highest bracket. For example, Elon Musk, the chief executive of Tesla and the world’s third richest person, was paid $595m (£449m) last year, almost 10,000 times the firm’s median salary of just under $60,000.

Elon Musk was paid $595m last year, almost 10,000 times the median pay at Tesla.
Elon Musk was paid $595m last year, almost 10,000 times the median pay at Tesla. Photograph: Odd Andersen/AFP/Getty Images

Tim Cook, the chief executive of Apple, was paid $134m in 2019, more than 2,300 times the firm’s median pay of $57,600.

At Google’s parent company, Alphabet, Sundar Pichai’s $86m was only 350 times the median of $246,804. Unlike Tesla and Apple, Alphabet does not operate high street stores, which brings down average pay.

Sundar Pichai, the chief executive of Alphabet and Google, was paid 350 time the median pay of his employees.
Sundar Pichai, the chief executive of Alphabet and Google, was paid 350 time the median pay of his employees. Photograph: Tsering Topgyal/AP

The pay levels of US chief executives have increased by an average of 940% since 1978, compared with a 12% increase in workers’ pay, according to the Economic Policy Institute thinktank.

San Francisco’s new tax is estimated to bring in an extra $60m-$140m a year, revenue that will be spent on improving the housing and healthcare provision for the city’s poorest people. The tax, which comes into force in 2021, will be collected from all companies operating in the city, not just those headquartered there. The pay ratio will be calculated comparing CEO pay with the median of workers in the city, not worldwide.

Haney said that while the city desperately needs more money, the tax is also designed to “encourage companies to pay the lowest paid more or cut their executives’ huge pay”. He hopes the new law will set an example for other cities, states and even countries, like the UK, to follow to try and help tackle inequality worldwide.

“San Francisco has some of the most extreme inequality anywhere in the world, and many of the best-known companies growing here have some of the largest gaps between executive pay and worker pay,” said Haney, in an interview over Zoom as he walked to work this week.

Haney, who represents District 6, which includes the Tenderloin, Mission Bay and South of Market, added: “The contrasts are especially stark in my district where I represent some of the richest parts of San Francisco – and the country – and some of the poorest parts with huge numbers of homeless people without access to healthcare.”

The tents set up by homeless people in the Tenderloin district of San Francisco.
The tents set up by homeless people in the Tenderloin district of San Francisco. Photograph: Shannon Stapleton/Reuters

He said the coronavirus pandemic had exacerbated San Francisco’s inequality problem, which had already created “a city of extreme suffering” that drained local government of resources.

“The heath system was already very strained, and the pandemic has exposed it even more,” Haney said. “It has shown how stark the inequality is, poor people could not afford to shelter and people of colour and essential workers bore the burnt of the pandemic.

“At the same time the richest have gotten much richer [from the pandemic] it shows the fundamental flaw of our economic system. A small number of people continue to make massive profits at a time when almost everyone else was suffering more than ever.

“The only way to solve inequality in San Francisco, is to make those making making huge profits to share it,” he said.

“There is a very dangerous imbalance here, people don’t like where we are going. We want to live in a city where we and our neighbours are doing OK, are healthy and safe, when you have a city so unequal it is very hard to keep everyone health and safe.

“It is the 0.001% of society who are causing the problem, there has to be a reckoning or we will see more suffering and poverty and it is a concern to all of us – our health and quality of life. The pandemic has shown us how we are all connected, and when some people are unable to take care of themselves it can put us all at risk.”

Haney said that in the face of inaction from the national and state government, the city had decided to act on its own. “It is a twofold goal, to address inequality and bring in new resources to allow us to response to the biggest emergency,” he said.

Haney hopes San Francisco could act as a template for others to follow. Portland, Oregon, introduced a similar but more limited levy in 2018 and expected to collect about $3m from roughly 150 companies.

“The overwhelming victory here will lead other cities and states to follow,” Haney said.

“San Francisco is a modern day version of a A Tale of Two Cities everywhere you look, we can’t have a nation that turns into that.”