Illustration by CKongSavage.com
No matter how hard I try, it’s impossible to convince everybody to adopt the Stealth Wealth mantra. Rich people should never share how much they truly make or how much they truly have because they will become targets of envious people looking to take them down. Nobody is looking to kidnap or murder an average person; only a rich and famous person. Try and blend in to live a more comfortable life.
When 26 year old Haseeb Qureshi published a post on how he managed to negotiate a $250,000 annual compensation package at Airbnb, I was intrigued. It’s a great post about how he pitted multiple tech companies against each other to bid on his services. Once he got Google interested at $220,000, the doors to other companies flung wide open.
But, usually a job search is private. What will Google hiring managers think now that they realize they were played like a fiddle? What about the hundreds of employees at AirBnB who are older or who have been there longer who don’t have a $250,000 a year compensation package? How will they feel? Will his next employer be a little more savvy? Who knows.
After Haseeb got the AirBnB offer, he wrote, “This company must be out of its goddamn mind. No wonder tech is so overvalued. I lost my shit.” Now, Haseeb needs to really over deliver on high expectations or potentially face an early exit. I was pretty miffed by the whole salary revelation, but instead of staying intrigued, I simply asked him in his post why he made his compensation package public. Here was his response!
Why Tell The World How Much I Make
Hey Sam,
You raise totally valid points, and those were certainly things I thought about when writing this blog post.
Based on the feedback I’ve received, I think this post has been clearly valuable to people—transparently describing the job search and the negotiation process have given many people more insight into the SV engineer hiring market. It’s evidently been motivating to people who want to break into tech. All of that is great.
I also hope that my story also gets awareness for earning-to-give and gets people interested in effective altruism.
And yet you raise a good point: Americans keep their compensations secret for a reason.
(Though there’s nothing intrinsically secret about any of the compensation numbers I mentioned; you’d be able to unearth similar numbers yourself just perusing GlassDoor.)
But it’s inevitable some people will react negatively. As you say, it’s human nature. Some people might think I don’t deserve what I’m making. Colleagues at Airbnb might be miffed that I’m making more than them, or a future manager might believe that I’m being overpaid.
That’s all fine. It’s all true, so it’s fine. By accepting this job I also accept the burden of proof it comes with. And it’s up to me to prove that I’m good enough to do the job I was hired for. And if that means I have to work my ass off to deliver that value, or it turns out that I can’t, then fair game.
Living in one of the richest countries in the world—and on top of that, living in a country where the majority of young people are burdened with debt and struggle to find consistent employment—why shouldn’t I be questioned about why I’m making what I’m making? Why shouldn’t I be honest about it, and be challenged to prove my worth?
I understand the impulse to evade scrutiny. I’ve certainly felt some of that impulse after this blog post went viral. But ultimately, I think it’s a good thing for the society that stories like this are not secret. That people know how much I’m making, or what people like me make. That they ask questions about it. That it not be silently assumed this is just the way things work.
By keeping it secret, I become complicit in this economic structure.
That’s what I believe anyway. And by earning-to-give, at least in my mind, I’m doing my own small part to erode that economic structure.
– Haseeb
This is a terrific answer and I appreciate Haseeb’s response. His earning-to-give plan is fantastic and should pick up some awareness as his post goes around the web. The earning-to-give plan is similar to my income tethering concept where I recommend tethering one income stream to a purpose to make working on such an income stream more meaningful e.g. tether online income to paying off a mortgage, tethering my Best Of Financial Samurai ebook income to charity etc.
I’m thankful that Haseeb doesn’t want to be “complicit in this economic structure” and is willing to pay more for things because he earns more than most. After Haseeb responded, I wished him the best, and told him to stay at Airbnb for as long as possible to collect as many RSUs as possible. It’s not like he’s getting options in some tiny company with little chance of going public. Even at a $24B valuation, Airbnb is the one large private company where I see the most upside.
Take Advantage Of Opportunity
As a landlord in San Francisco, I’ve been able to benefit from a rising increase in housing demand. I realized long ago that I was too stupid and unqualified to get a job at one of these hot tech companies. Owning real estate was the only way I could take advantage. Sell the picks and shovels right?
But lest you think I’m one of those nasty landlords who kicks tenants out to renovate and flip or find new market rate tenants, I’m not. I’ve never once disrupted an existing tenant. I’ve simply been buying under-occupied places to live (e.g. empty fixer unoccupied for two years) and then adding to the housing supply by renting out my place to more people than how many people were previously living in the home.
Check out: Three Immediate Solutions To The Housing Affordability Crisis.
I’ve always held the belief that people make much more money than we really know, partly due to the growing Stealth Wealth movement. But Haseeb’s detailed post about his $250,000 compensation package (130K salary, 25K signing, 95K a year in RSUs) is simply additional confirmation about my belief. Making almost $21,000 in gross income a month as a 26 year old is fantastic. Granted his 95K in RSUs isn’t liquid; I think it’ll be worth much more years from now.
As a financial freedom seeker who is looking to maximize alternative income streams, we can learn the following from Haseeb’s post:
1) Many people in tech get paid well and can afford high rent. Given the job market is highly competitive in Silicon Valley, other people his age from companies such as Google, Facebook, Pinterest, Apple and Uber make similar amounts a year (+/- $50,000). Someone who is making $11,000 – $21,000 gross a month is making roughly $7,700 – $14,700 net a month. Therefore, the demand for one person paying at least $3,800 or more in rent is high (25% – 50% of salary).
2) Tech companies encourage income transparency. Airbnb didn’t instruct Haseeb to keep his compensation package quiet. As a result, one can conclude Airbnb has no problem with the world knowing how much their engineers make. Severance packages, on the other hand, are absolutely to be kept private by both parties. If tech companies are so open about how much they pay their employees, they should be more open to paying more taxes and helping the community of people who are being negatively affected by their high income earning employees.
3) Apply to tech companies and command a high salary. By highlighting Airbnb pays $250,000 in total comp for young engineers, they are inviting more people Haseeb’s age to apply for similar positions for similar total compensation. It’s only rational to conclude that if you are in your 30s, 40s, and 50s+, you will probably make in the $300,000s, $400,000s, and $500,000+. All existing employees at richly valued tech companies should immediately ask their managers for a raise if they have similar or more experience than Haseeb, and are making less than $250,000 a year.
4) IPOs will ignite a property buying frenzy. Less than 1% of the housing market is on sale at any given moment. An IPO by Airbnb, Uber, and Pinterest will create thousands of liquid millionaires who will likely try to buy a house with their proceeds. If Haseeb gets $95,000 in RSUs a year every year, and each tranche has a 4-year vesting period, by 2019 he should have at least $285,000 in liquid RSUs and $380,000 in liquid RSUs by 2020 if Airbnb goes public by then at the valuation it’s at today. Given Airbnb is still growing rapidly, one could easily see a $50B+ valuation in three to four years at the time of IPO. Therefore, all prospective buyers should buy property before Airbnb, Uber, and Pinterest go public, and all current real estate owners should just continue to hold on even though the market is fading. Besides, paying a 5% commission to sell is egregious in the Internet age.
5) Landlords should raise the rent on private tech company employees. Given tech employees are making a very strong annual income, have no problem telling the world they make a lot, and will likely see a huge windfall in 2018+ from IPOs, landlords should absolutely raise the rent to the maximum allowed after the first year (by 10% with a 30-day notification, and by up to 60% with a 60-day notification). By not raising the rent, landlords are leaving money on the table and exacerbating the housing crisis by creating more demand than necessary. Higher rents REDUCE demand for housing, reduces congestion, reduces pollution, reduces displacement of long term residents who do not earn as much, and increases the quality of life for everyone.
Take Advantage Of The Rich
By not maximizing pricing (P world) you are creating economic waste through excess demand or shortages (red triangles/societal loss). Raise prices to P tariff and you eliminate waste.
Even though we have tax discrimination where higher income earners pay a higher marginal tax rate, rent price discrimination based on income or wealth is not allowed (e.g. artists shall pay $1,500, techies shall pay $3,000). Instead, you can only list one price and see if there is demand and adjust from there.
If you want to give a rent discount to a lower income earning teacher or service worker, definitely do so. I rented out a small unit to a middle school teacher for 30% – 50% below market rent for years because she only made about $36,000 and was doing important work to help kids.
It’s during the lease renewal period when you should be more aggressive in raising rents on highly compensated employees. Landlords have been very timid in raising rents on their non-rent controlled properties in the past. Because I felt bad, I only raised the rent by 2-3% a year after a couple years of no rent increase. But after reading Haseeb’s post, I don’t feel bad going up to the max 10% increase anymore.
Again, if Haseeb wasn’t OK with paying higher rent, he wouldn’t have told the world he makes $250,000 at his age. He could have just as effectively shared his job negotiation strategies without exact numbers. But since he is a renter, and not an owner, he is a price taker and subject to variable living costs. If Airbnb didn’t want their employees to be subject to higher rents, they would have non-disclosures in their employment contracts like they do in their severance agreements.
Everything is rational. You must recognize what is irrational and maximize the situation through action. Now if Haseeb was 45 years old and had two kids and a spouse to support, that’s a different story. Everything is also relative as well!
Recommendations
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Updated for 2019 and beyond. Expect Airbnb to go public by end-2019 and unless a wave of new multi-millionaires to drive up rents, home prices, and traffic!
Oh I forgot too add on Transparent Cali (sp?) you can look up the exact annual salaries of all public school teachers in SFUSD. The only reason why Haseeb’s salary package is so controversial is the sheer amount of it and people do not view the work of an engineer as “unselfish” as a teacher’s, I guess :\
“I rented out a small unit to a middle school teacher for 30% – 50% below market rent for years because she only made about $36,000 and was doing important work to help kids.”
Oh that’s quite nice of you Sam, were you breaking even renting it out at that point?
Haseeb definitely sounds like a pro-poker player. Good poker players always have a way with words just like they have a way with bluffs and calls. Great attitude and use of his skills! I don’t see the controversy!
My husband scored a great package with Oracle and Google (surprisingly) beat it. He makes around where Haseeb makes but hubby is a bit older at 29. We are no longer living in the Bay Area anymore and although I miss the bomb Chinese food, it is nice to be able to afford a house in Seattle quicker.
I work with AirBnB as a full time host. I tell my guest during my turnovers, “don’t mind me I’m just a over glorified cleaning lady” which for what I do, is basically true. I do not tell them I own the properties because I fear the judgement that might be passed down. Is that stealth? :p
Some interesting background on the Haseeb story. Apparently he has a pretty shady reputation in the poker community and admitted to sketchy activities (e.g. https://www.highstakesdb.com/2375-haseeb-qureshi-admits-to-chip-dumping-quits-poker.aspx ). I’m not sure I’d take much this guy says at face value. There are some pretty bizarre stories on this guy if you care to google any further.
Pretty interesting stuff and he admits to doing some cheating. I can see the temptation being a young guy with so much online. I’m surprised there’s not more collusion in online poker! I colluded with my buddy before playing spades on yahoo before! But of course, that was just for fun.
I think the key point is that Haseev showed us a window into how much Airbnb engineers get paid. And given Airbnb allowed him to reveal all the juicy details, we can conclude that Airbnb pays many people his age and with his experience this $250,000 compensation package.
And as S who are looking to achieve financial freedom sooner, we must recognize the reality that a lot of people make a lot more money then everybody realizes, and not to listen to mass media who says everybody is starving and out of work. The mass media loves misery. Of course there are people who are struggling, but don’t forget there are many people like Haseeb who are doing very very well.
Long time reader, first time commenter.
Product is a product. I don’t believe there should be an income scale for a like for like product such as housing.
What I wanted to comment about is a 26 year old making ok money making it public (area I have some expertise in):
It’s the most foolish thing I’ve heard and I will bet he will regret it in the next few years. I’ve been lucky to have done well in my job (I am 27, I make ~1mm/year as a prop trader for a well known private, non bank firm). NOTHING good comes from people knowing your comp.
A) peers: your peers will think , at best, it was because you are “lucky” or be preposterously envious of your position and spread rumors and negativity.
B) colleagues/boss: by making it so public you have ruined your upper hand in negotiations and put a target on your back. All it takes is one aggressive management type to determine you are acting “beyond your pay grade” (because what is an engineer vs a 20bn company) and make an example of you or spread disparaging rumors. Especially in tech which despite generating billionaires still has a monster egalitarian streak.
C) society: guess what that kid writing about his pay makes even Sam (a capitalist) think whether his rents should be jacked up! Now think about the day to day people on the streets.
Who cares about transparency? The engineer should care about bettering his work/craft and making leaps up the chain/start his own venture eventually. Wanna donate? Open the checkbook and stop talking.
His payoff from releasing his pay and negotiation so publicly is nothing compared to the **possible** repurcussions.
So my main question is: why does he and so many others publicity proclaim how much they make? Is it immaturity or low self-esteem? A desire to feel redeemed to prove others they are somebody? Or is it really about “making the world a better place” by fighting pay discrimination?
It’s a form of bragging. By wrapping it as a “fighting pay discrimination” you get to humble brag plus get your activist cred up. Hilarious.
Ok, so if it is bragging, then his landlord should definitely raise his rent and those who work at Airbnb then right? It’s only logical.
Hey it’s a free market. The only thing you **should** do is whatever will allow you to extract the best economics from your asset.
It’s not ideological for me : he has given away his negotiating power and provided you (the landlord) with information/ammunition you can use to squeeze every last dollar out. Putz!
In response to your poll, if I could get a rich person to pay a higher rent for a property I owned, I would, since it would be a good business move to get more money for the same work. I would not have a moral dilemma about this, because no one is forcing them to rent my property. However, a progressive tax system is wrong, because higher income earners are forced to pay more. The problem does not come in when someone is discriminated against price-wise because they were stupid, but when they are forced into discrimination.
That’s why I blog anonymously. So no one will ever know my salary.
God, he’s younger than me and makes half my annual salary in a month. Thanks, retail banking. I think I’ve failed life.
To echo others, while I admire your intentions, Sam, I think you need to be very careful if you’re going to give discounts to low income tenants. Because, like many have said, you lead yourself open to discrimination lawsuits if you do. God forbid the high income earner you’re charging more to is a woman or a black or Jewish, and now you’ve got a HUGE discrimination lawsuit on your hands.
Hey, how’s this for an idea. Charge everyone the same rate of rent, but instead of a fixed rent, it’s a fixed percentage of their annual income. And make this your standard policy towards all tenants, disclosed before any lease is signed. That would certainly eliminate any possibility of discrimination claims, right? Since the decision on how much to charge people is no longer an arbitrary one but a uniform one applied across the board?
Hell, this can even help control the exodus of low income tenants from gentrification neighborhoods. Imagine if rents being a percentage of the tenant’s income was the norm; landlords were able to get their higher rents from those supposedly gentrifying the area, but the people who were already there are no longer in danger of being priced out. It would also eliminate complicated housing regulations such as the need for rent controlled units and the like. Of course, some details would still need to be hammered out in order to make this a reality, but how’s that for an idea?
Sincerely,
ARB–Angry Retail Banker
Just curious whether his pledge to “earn to give” impacts your thinking. After all, you state that you were willing to charge 30-50% below market rents for a middle school teacher. What about a rich guy who’s giving 33% of his high income away to a teaching charity? Seems like both are doing something to help the kids.
Absolutely. I think it’s great and hope his post and this posts sheds light on tethering our income to help others.
I usually get offended in situations of price discrimination, like the variable pricing we sometimes see on Amazon. Fortunately, there are often multiple retailers selling the same item so I can shop around before I buy.
Applying that to a rental market sounds like good business acumen (as the landlord) as long as you can fill your units. I’d imagine that it’d be hard to do outside of the metropolitan areas or ideally a city with a housing shortage and big industry drawing in employees.
Wait, you wouldn’t like it if all businesses had a special price chart for doctors?! :)
I’m hoping people make a connection that if they don’t want to be price discriminated against, then they should be outraged by a progressive tax system. They should also be upset at people who are upset at high income earners who pay the most in taxes.
In other words, I hope folks stay CONSISTENT in their thinking. Just because you aren’t being discriminated against, doesn’t make discrimination right.
Granted, some Amazon sellers are taking advantage, perhaps but Prices sellers charge on Amazon are also affected by how much the seller pays for their stock. Everyone doesn’t have the same supplier and situations change rapidly in the ecommerce world. A seller charging you $1 more than the last seller is not necessarily trying to take advantage of you. They probably paid $1 more for the item. Amazon encourages its sellers to race to the bottom on pricing.
Sam, I knew that was the point of this article while reading it. Good perspective equalizer.
You have an interesting way of looking at things. What do you write makes perfect sense. As a landlord of a two unit building I plan to increase my rent to the limit as well for tech employees who work at Airbnb and similar type companies. I did not know they earn that much in RSUs. But thanks to Haseeb and this post, I know now!
It’s important to raise rent to market rates and not create an artificial excess of the man that further exacerbate housing. It’s like private schools charging rich people the maximum rack rate for tuition.
Tech companies need to do more to get back to the community they are displacing.
I’m having trouble understanding the logic behind the jump from your key premise to the conclusion; if a person is transparent about a high income, the person is willing to pay more. To me, it just doesn’t follow.
It’s pretty easy to explain. Just put yourself in a different scenario.Imagine you were the boss, and your employee said she was making so much money. Would you be inclined to pay your employee more? Probably not. And your employee probably wouldn’t care either because she already makes so much money. It’s pretty rational thought. I give you this perspective as an ex manager.
When you negotiate rent with your tenants, don’t you take their income into consideration regarding how much they can pay? If not, how do you determine how much rent to raise in a market that is in high demand? I’m always looking for different rental maximization perspectives from landlords too. So all thoughts welcome.
Personally, I see no problem with price discrimination if you can get away with it. In your manager scenario, I would seek to exploit any reason to pay someone less.
Still, the hiccup for me is the word “willing”. I don’t see any inherent telos in transparency that would lead one to believe said person is okay with paying more.
My thoughts are not in opposition to the point of your post, but rather about the logic you used to get there. The way I see it, every buyer wants to pay less and every seller (renter) wants to charge more.
replace (renter) with (landlord) in last sentence
Let me ask you this then: Why do you think someone would be UNwilling to pay more if he was willing to tell everybody how much more he makes than everybody else? Making $250,000 at 26 puts him in the top 1%.
Or asked differently, why would someone who earns a top 1% income, but who is not financial independent yet or doesn’t have a fixed mortgage tell the world he makes top 1% income?
Wouldn’t it be illogical that one would say I earn more than 99% of you, but not be willing to pay more?
$250k is not in the top 1% even in 2011, according to CNN Money. I have seen numbers as high as $585k to qualify.
I am unsure why his age has anything to do with him being in the top 1% or 5% at that?
$250k is in the top 1% for a 26 year old.
$400,000 a year in income is the top 1% for overall income earners.
It is interesting you don’t think income and age has an important correlation when earning money. Usually it takes time and experience to make more money in one’s career or life. Do you know a lot of 26-year-olds who make $250,000 or more?
Here is a highly ranked post that talks about income: https://www.financialsamurai.com/how-much-money-do-the-top-income-earners-make-percent/
What is it that you do for a living? I am very interested in your unique perspective about income. More people would think that if he was 40 years old, had a family to support, that $250,000 would be less of a big deal people. But due to his age it is a bigger proclamation, and I’d love to know why you don’t think this way. I believe everything is relative. Thanks!
Check out this post too: https://www.financialsamurai.com/how-to-make-six-figures-a-year-and-not-feel-rich-200000-income-edition/
I own a skin care company. I have never seen a breakdown of the top 1% by age before and was thinking purely of the numbers. Of course anything over $50k is a lot at 26 – it’s better than the median income of the general population at $48k. Young people seem to be earning more than older people in every industry now. That used to only be true in entertainment. It’s interesting and frankly a little scary to behold.
Thank you for the link. I really love your blog and have learned a lot here. Especially yesterday’s post about retirement being similar to having your own business venture – which it IS~! =)
(There is not a reply button on your comment for some reason, so I’m not sure where this will land)
Thanks for the dialogue. I ended up writing a post to explain my position more.
Check it out! The Top 1 Percent Income By Age Group
*I actually know more than a few in their 20’s earning that much or more in eCommerce. It’s making old age even less appealing ;-P
There are many reasons for someone to talk about income. Bragging and cultural differences are the two most prevalent. In some eastern cultures, income is openly discussed. Don’t quote me, but I believe I read once that Singapore has a very open view of income.
That does not mean those people want to pay more for something just because they can or in the case of bragging, because they flaunt. Let’s say your SanFran transparent high income earners were willing to pay more, why wouldn’t they offer? Why does it take you or other landlords to coax the willingness out when the high earners can choose to offer a couple hundred more a month in rent?
So you think Haseeb is simply bragging as a 26 yo? Maybe, but he doesn’t seem like a braggart.
Even if it is in his culture to tell everybody his income, in the US, this is not part of our culture. So is it better to assimilate into a culture or rock the boat and see what happens?
There’s no need to coax a transparent high income earner. You just raise the rent and they pay the higher rent b/c they can afford it. If they don’t want to, then they move. Nothing complicated.
I’m not following the logic in this post also. I have lots of friends who have high net wealth and also freely disclose income/assets to others but are extremely price sensitive.
Your use case of a 10% increase on a $3500 apartment is problematic also. Even with a compensation of $250,000, a $350 increase is very significant. The only time I would consider doing that is if the tenant was paying way under market.
One of my tenants works at Google as a senior software engineer. Compensation is $145000 base, $17,500 bonus & $5200 equity. There are high income earners no doubt in the Bay Area but the majority of tech engineers and product managers aren’t making anything close to $250K.
It shouldn’t matter whether your renter makes $1m/yr or $10k per year as you know that income is only a small part of the equation. There are other things, like debt, net worth, interest payments, prior or other fixed expenses, for example, which can affect cash flow.
However, if you are a business owner and you are overly focused on the individual on the other side of the table, I think you are doing yourself and your business a disservice. You should charge whatever rent you can get in the market. It shouldn’t matter if the person is open or not about their income. Btw, you would get this info from them anyways if they apply, or at least, you should! If anything, there is a positive from someone who openly admits their income, which is that this person is likely to be more transparent.
As a side note, if this individual were in Manhattan, they would only count the $130k salary and then only allow him to rent an apartment if the rent x 40-50 is less than his income. In this case that would be $2,600-3,250, which as you know, is not, by any means, a luxury apartment in NYC or SF.
I think the reason he was comfortable sharing his income is because in NYC or SF or London, $250k is not a lot of money, especially when half is deferred. I bet if he were netting $300k per month after taxes, he would have kept it quiet. Unless, of course, he were in Greenwich, in which case he would keep that measly amount to himself.
You’re exactly right. And that’s my point. Many people make A LOT more money than people realize. So when the mass media drones on and on about $3,000+ one bedrooms in SF, it should be paired with the fact there are plenty of 26 year olds who have $250,000 a year total compensation packages.
Give Haseeb 3 years. I bet his RSUs will become liquid and make him a wealthy guy once he’s 30 if he sticks w/ Airbnb.
The thing you are missing is this: things change after a tenant moves in. They may lose their job or do what Haseeb has done and shine a bright light on how well he and all his colleagues get paid. You don’t usually ask for financials once the lease is up again. You just keep flat or raise the rent based on a range, based on a rental law.
If Haseeb was my tenant, I don’t think he’d have any problem seeing a 10% increase in rent from say… $3,000 to $3,300. He’s proud of his accomplishment and seems very open to paying more, otherwise he wouldn’t have displayed his wealth. Every time I meet an Airbnb employee who is 26 or older, I will automatically associate $250,000 or more b/c that’s the truth. We go through life using signals to identify folks and make financial decisions accordingly.
If Haseeb was my tenant and lost his job, I’d probably just keep the rent flat even though the market rent might have gone up to $3,300 or greater in one year in SF.
Have you read?: Making $200,000 A Year And Not Feeling Rich
It does matter if you tell the world how much more you make than them. Then you’re just asking to be taken advantage of.
Taxes i believe is just to provide for the poor so they dont disrupt the economy, so they receive a free portion to stay quiet so middle class and rich live untouched.
Now, housing is different you have more choices so its more like a free market, either if you make 250k vs 50k a year you can always pay $2000 in rent a month (just example). I dont think is just the same that for the same rental the person making more should pay $4000.0 since he is deciding to pay less rather than more. In fact the 50k person wont be able to rent a 10k per month place for $2000 just because he makes less money. Because the lanlord needs to either pay himself or pay a mortgage.. market sets the value, and government set the value in this case for taxes..
If we were to all pay the same in taxes then this would have been a fourth world country… and no it would bring even more fraud since everyone that was suppose to pay 35% now wants to pay 10%
Where I live and work, salaries and extra compensations are the best kept secret ever. I am sure that a leak of such data would upset a lot of people.
In a previous position, I hade some anomalies in the team I got to lead. Some were clearly overpaid, others underpaid. As a manager, I would not fee comfortable when I would need to explain this.
Maybe that is why they are such good secrets.
On the poll: It is not because you earn a lot, that a service should cost more. It would imply that you pay less if you earn less… Where would this leave the incentive to work harder to earn more? Or to work at all. That being said, I am happy to pay a progressive higher tax and in return get a decent medical and social system in Belgium.
The question I will ask many Europeans when I go next is: Do you thing an aggressive progressive tax rate has stifled productivity, risk taking, entrepreneurship, and invention?
I ask because I wonder how come not MORE companies and innovation don’t come out of Belgium for example. Perhaps it is exactly because there is less incentive to work harder at a 50%+ tax rate than a 25% tax rate? I’d love to hear your thoughts.
I don’t think Americans are any smarter than Belgians or any other European.
Hey Sam, I get your point and kind of agree but there’s 2 main avenues of thought from your question.
First:
USA has a population of (2014): 318.9M
Belgium (2013): 11.2M
So maybe a better comparison: The EU: 500M
How big does a company need to be, or how innovative? In Europe you don’t have many ‘tech’ companies.
Here’s a wiki list: https://en.wikipedia.org/wiki/List_of_largest_European_companies_by_revenue
Here’s some that come to mind that would count as innovative: Formally global (phone company) Ericsson & Nokia, IKEA, Lego, Airbus, Audi/BMW/Mercedes/Ferrari/Lamborghini/Porsche/Volvo/etc, Siemens, lots of health/drug companies, Philips. Maybe there should be more?
Second thought:
I think that when you think about an innovative American company, you’re essentially thinking of tech companies. These are nearly all based in California I believe? Perhaps a couple in other states. What does that make the other 45+ states seem like?
Silicon Valley seems to act as a global pull to innovative people. Bright minds are scooped up out of European, Asian and other US State universities to work there. I reckon if you looked at how many people not from California (and the US in general) work in Silicon Valley or have started a tech company it would not be 100% Californians/Americans.
Tristan
I would add “innovation” is an overused term by the media, especially when in comes to Silicon Valley and high tech. The media enjoys focusing on high tech since several entrepreneurs have made boat loads of money in a very short timeframe. Fracking techniques, for example, is just as innovative as any technology invented by SV companies and have revolutionized energy generation in US and have disrupted energy prices worldwide, but doesn’t receive the similar positive media coverage on innovation.
European countries and Japan, for example are thought to be less innovative societies compared to SV, but these countries all have highly punctual high speed rail for the past several decades.
Kudos to this guy for achieving his goals thus far in life and good luck to him. It seems he was a Poker player and chose to document his experience publicly as well. My personal view is that he chose to forgo his anonymity and share what most people would consider very personal information for self promotional motives in addition to helping others who are job searching. There are pros and cons of sharing too much on the internet publicly, so as long as he’s okay with it, more power to him. Hopefully the opportunities it brings him outweighs the negatives which may come as a result.
I hope so too. He has had a great attitude about his experience so far, and I really like how he plans to donate 30% of his compensation to charity. That is simply wonderful and motivates me and hopefully others to give more of their time and money to help others as well.
We have to also remember that he is only 26 years old, so he hasn’t gone through some of the things older employees gone through regarding backstabbing, office politics, getting laid off, and all sorts of fun stuff that comes along with full-time employment. We are always much more hopeful and a little bit naïve when we start. As we grow older our battle wounds Start becoming more visible, and that is when we grow a little wiser and keep things closer to her chest. Stay in the shadows and live your life to the fullest without anybody knowing your true wealth.
If you charge more rent to high income earners, pretty sure that would just drive them toward nicer properties, as I’m not sure why anyone would pay more for nothing. If you adopt this practice as a landlord, wouldn’t you just drive away better quality tenants? I have one single tenant commercial office building that is like NNN and then some, and I charge below market rent to a very solid tenant who never in 4 years has bothered me about anything. He’s asked for approval to replace a fence and make some other structural repairs above $5k (which are to my benefit), but otherwise, he leaves me alone and runs his business and I make a nice yield with no effort. To charge him more because he can afford it would defeat my purpose. So, I guess there may be some policy reasons similar to a progressive tax to charge more rent to more affluent tenants, but not sure it would be a good business practice? On the other hand, what you’re getting at does sound a little like low income housing. That seems to work quite well and there are tax incentives for developer/owners to set aside a certain portion of their units for income-qualifying tenants.
There’s basically a range every landlord can charge to find an optimal balance where both sides feel like they’ve gotten a good deal. In a high demand market, that range moves at a higher rate than what landlords are used to charging. As a result, you see people paying way below market rents after 10 years. We’ve all heard the stories of people paying $800 a month for an apartment that would rent for $3,000 a month. But I think that is FINE if the tenant has been great and the tenant isn’t making boat loads of money and proclaiming it to the world. If there is a housing shortage, I think it is BAD that someone making $250,000 a year is paying way below market rate when someone who might only be making $50,000 a year is only faced with $3,000/month apartments.
In other words, it’s all about being more EFFICIENT in your price discovery. Charge the people who can afford to pay more, more. Charge the people who can only afford to pay less, less. But of course, you can only raise rents up to a certain amount of the law, but I think you have a lot more leeway to lower rents as well.
I voted yes, but it’s rather conditional. If I start a business in an affluent area, I will absolutely charge higher prices for the same goods in another location – differential pricing is perfectly legal and acceptable way to garner even more profits.
As Yetisaurus pointed out though, income discrimination could very well end you up in court and isn’t worth the risk; discounts for low income would be the better way to go. Surely there is a government program to help subsidize that too!
Further, if you’re gonna flaunt your money in front of me, knowing that as a public service employee I’m probably making less than $50,000 a year, then you can darn well expect me to think you’re buying a round or two of drinks.
What are your thoughts on how someone would prove income discrimination? As a landlord, there are multiple variables in the decision making process, including: income, credit score, credit history, employment, references, the interview, etc.
Yetisaurus is different from me in that she has no problem buying rental properties and evicting tenants. My view is maximizing rent to the extent of the law (e.g. 10% increase w/ 30 day notice) to people who openly say “look how much money I make.” If that’s the case, here is a 10% increase rather than a 3% increase.
What are the main decisions you use to rent out your property?
Yeah, we definitely have different philosophies, Sam, but that’s ok. To each his own. :)
I would think that income discrimination could be proven most easily if you had a building with a lot of identical units, and you had a pattern of renting the same units to lower income earners at a certain rate, and to higher income earners at a different rate.
If you had a few SFRs instead of a uniform building, and if the SFRs were in roughly the same geographic location, you could try to look to comparable houses to try to make a similar pattern. Two similar houses in the same neighborhood, one occupied by a schoolteacher who never got rent increases and the other occupied by a high earner who always got maximum rent increases might raise a flag.
With a single SFR, it would be harder still. If you rented to a schoolteacher for $2,000 per month, and then he moved out, and you rented to a high earner for $3,000 per month, and then when the high earner moved out, you rented to another schoolteacher for $2,000 per month–assuming the rental market stayed about the same or went up–then the high income earner who just left might make a complaint.
There’s probably a lot you could get away with if you kept it on the down-low. I just wouldn’t make a public claim about your pricing theories, given what I perceive to be a potential risk. But maybe that’s the paranoid attorney side of me.
I really think it is the paranoid attorney side of you. Who on Earth would try and spend time and money to sue a landlord who is charging within the legal band of market rate just because someone in another building is paying less rent? Maybe the other building has less amenities, or maybe the tenant got a deal at a different time.
If you agree to the lease agreement, you agree to the lease agreement. It’s like being on an airplane and finding out your neighbor paid $100 less for the same flight. Are you going to turn around and sue American Airlines because you paid more? I guess you could, but why did you agree to pay more in the first place?
You would need multiple exact same units with the exact same views, amenities, size, appliances and start date with different prices compared over multiple periods of time to build a case. Maybe lawyers salivate at this prospect b/c it is their livelihood, but most people are rational and agree to pay a price they can afford.
Can you elaborate what exactly you are disagreeing with? I’m not exactly sure.
I agree with you on the fundamentals, that if someone agrees to rent from you at a certain rate, that should be good enough. That’s the free market side of it, and I am completely on your side based on the principle of it. My paranoid attorney concern is just that someone might try to make a pattern out of unequal treatment, and they might try to make a lawsuit out of it. We see people do it all the time, unfortunately, although our firm doesn’t participate in filing frivolous nonsense like that.
California has a catch-all rule against “arbitrary discrimination” which is so loosey-goosey that people can use it to complain about discrimination on nearly every ground you can think of. I just foresee the possibility that a high income earner might say you’re discriminating by routinely charging high income earners more than you charge low income earners. If it were part of a low income housing program where you’re operating based on government-imposed guidelines, then fine. That would be the best defense possible. But if you’re unilaterally treating different groups of tenants differently, I would just be really careful about it.
If someone were to bring an arbitrary discrimination claim like that, they wouldn’t necessarily need to show identical units, they would just need to show a pattern. It’s not a science experiment, it’s a lawsuit with a preponderance of the evidence standard. If it looks to a judge or jury like there’s a 51% or greater chance that you’re discriminating, that could be enough.
The American Airlines example isn’t exactly on point because AA offers different ticket prices to the general public at different times. If AA said they were going to offer ticket prices based on the income level of the purchaser, they might have a different problem on their hands. Maybe not, but I wouldn’t want to gamble with it.
I don’t want to make this into a bigger deal than it is, and I feel bad that it’s already absorbed so much of your bandwidth. It’s just that I like you and your site, and even though we haven’t met, I see you as a friend. (Not trying to sound creepy.) It’s with that in mind that I just feel the need to warn you about something I see as a potential liability. Maybe I’m wrong and I’m being overly paranoid, but if you were my client (which you’re not), I’d tell you that if you want to do something like this, you might want to just not talk about it so publicly.
On the American Airlines example, wouldn’t someone have to demonstrate someone rented an identical unit at THE SAME time but with a different rate to try and build a discrimination case? Everybody knows that prices fluctuate at any given moment. Most people, including myself don’t have multiple units, or multiple identical units. Most landlords just have one unit, or different units in different areas.
Let me recopy my conclusion to you and anybody else paranoid about raising the rent to the extent of the law, and bold some points to get us on the same page.
Even though we have tax discrimination where higher income earners pay a higher marginal tax rate, rent price discrimination based on income or wealth is not allowed (e.g. artists shall pay $1,500, techies shall pay $3,000). Instead, you can only list one price and see if there is demand and adjust from there.
If you want to give a rent discount to a lower income earning teacher or service worker, definitely do so. I rented out a small unit to a middle school teacher for 30% – 50% below market rent for years because she only made about $36,000 and was doing important work to help kids.
It’s during the lease renewal period when you should be more aggressive in raising rents on highly compensated employees. Landlords have been very timid in raising rents on their non-rent controlled properties in the past. Because I felt bad, I only raised the rent by 2-3% a year after a couple years of no rent increase. But after reading Haseeb’s post, I don’t feel bad going up to the max 10% increase anymore.
As a lawyer, do you think you have more of a penchant than normal people for trying to argue a point, even though you are in agreement with the person? Isn’t it fascinating that I agree with you, yet you don’t seem to agree with me? Maybe my conclusion is not clear enough and needs rewording.
How about this:
Raise prices to the maximum extent of the law for those who openly proclaim they make a lot of money and can afford the increase. Don’t feel bad not raising rent to at least market rate every year up to the maximum increase allowable because you will then create economic waste otherwise. Economic waste creates excess demand and decreases equilibrium.
Side note: Man…. I realized I could have written another posts instead of trying to defend my point that I don’t think needs defending. Burning out now again and need to take a break. I really need to just let things be and let people interpret what they won’t.
Re: American Airlines example– they wouldn’t have to show that they rented an identical unit at the same time. Let’s say a high income person rents a 2-bedroom unit from you in 2014 for $2,500 per month. You raise rents on that person roughly 5% per year, so in 2016, they’re paying $2750. Let’s say that in 2016, after rents in general have increased about 10%, you rent a 3-bedroom unit in similar condition to a schoolteacher for $1,500 per month. Different time, different house, but both indicate that you’re strongly favoring the schoolteacher and/or punishing the higher income earner.
I understand what you’re saying in your conclusion. I think discrimination law applies to uneven rent increases as much as it would apply to initial rent rates. Are you thinking rent increases are exempt?
Like I was saying, maybe no one will complain and it will all be fine. I would just do what I could to avoid creating a pattern of favoring lower income and (arguably) punishing the higher income tenants, just in case someone wanted to make a mess out of it. Maybe the courts would agree with you that favoring lower income tenants is permissible, and not “arbitrary discrimination” under the law. There’s a good public policy argument to be made for that result. But you never know, and I wouldn’t want to gamble on it.
Hey Sam, interest discussion. Would you prefer the USA has a flat tax or progressive (maybe it should be called recessive from rich people’s POV).
I’d say there are certain things out there where rich people pay disproportionately more for the same thing. Fly from LA to New York? They will pay thousands more to get there as quickly as someone in economy.
Tristan
After doing my taxes were so long, I would much rather prefer a flat tax system with no deductions no loopholes no nothing. Everybody who makes above a certain poverty threshold per person or per family members show pay the same rate. Let’s say the rate is 10%. What is wrong with a $50,000 a year income earner paying $5000 year in taxes, and someone making $500,000 a year paying $50,000 in taxes?
Or text system is so complicated, there is no way that the majority of people do their taxes right 100% of the time. There is a whole lobby in this tree looking to keep the text code as complicated as possible. It is such a waste of time and money.
I think a flat tax rate of 10% and 20% sounds reasonable.
I like your idea of an exemption threshold. I think that’s sorely missing from some flat tax schemes I’ve seen proposed. With a flat tax system, would ALL deductions go by the wayside? Including depreciation deductions for rental property, for example? I haven’t seen one that went into a lot of detail.
Most flat tax proposals have an exemption threshold – they are called personal and standard deductions. Can argue the amount though.
Depreciation isn’t really a deduction of taxes but a recognition of a business expense (capital depreciates). Besides, once you sell the property your gain that you pay taxes on adjusts the acquisition costs lower by the depreciation so you do pay the tax – just when you sell.
The personal and standard deductions are SO low, though, that it can’t really be a substitute for a good exemption threshold. I think they should just be tossed out as being irrelevant or increased to a more reasonable number. If they were increased, I don’t think we would need as progressive a tax system as we have.
I get how depreciation works. It’s not a real “business expense,” though, at least as it applies to rental property. It’s an artificial number that is deducted, regardless of whether you paid to replace the roof or not. You get the tax benefit in advance of the purchase of the replacement items. Then when you actually incur a big capital expense, you then have to add that to your basis and depreciate that slowly. In that case, you have the actual expense in advance, and get the tax benefit later/over time. It’s just a weird artificial push-pull in that respect. I know it all evens out in the end, but it makes for some funny results in the interim (and usually a huge income boost at the end, which causes other tax problems, like AMT).
I was just wondering if you knew of a flat tax plan that was actually detailed enough to cover exemption amounts and what sorts of things would or wouldn’t be deductible. I don’t think I’ve seen any of them get into any real detail, and I’d be curious to see that.
I’d support a flat tax if the rate was lower. 10% is obscenely high for low income workers. $5,000 for someone earning $50,000 is way too much.
Sincerely,
ARB–Angry Retail Banker
Provocative as always.
While I commend Haseeb for his negotiating ability, I hope he won’t find he’s burned any bridges with his coworkers or future employers. Being open and controversial will paint a target on his back, hopefully for the better, and not the worse.
It’s the Google offer that broke it open for him. Everyone in the valley knows how hard it is to get into Google via the front door rather than an acquisition, so once that blood hit the water, the feeding frenzy started.
Moot. Moot I tell you. Our system is so deeply rooted. There will not soon be any additional costs depending on wealth. The higher income earners already pay more. More for more expensive/safer vehicles, more for better housing in better neighborhoods, more for health insurance. The fact is, with money comes a huge change in lifestyle regardless.
I am not in favor of charging someone more if they make more. You don’t know their situation. Maybe they’re taking care of an elderly parent or a special-needs child and spending a significant amount of that additional income to do so. Just because someone makes more doesn’t mean they have more disposable income. And even if they do, that’s not really any of your business. Set your rate higher if you want to and you can get it, but don’t decide that just because you think they can afford to pay more than someone else, that they should.
To be honest, I’m not a big fan of the tax system charging a higher marginal rate on higher income earners either. But it does get somewhat offset by the much lower rate on investment income.
People who make less also have to take care of family members, but with far more limited means.
Anita sorry about this, but your argument is invalid.
I should not be responsible for the fact that they chose to have “x” number of kids when they couldn’t afford to.
Their limited means is none of my concern as people who earn better than me should not be concerned about my financial issues either.
Otherwise socialism/communism will get back everywhere (it’s already starting to) and believe me, having been born in an ex-communist country, it isn’t something you look forward to
Neither should those things matter if someone is making more money. I think you missed my point.
At a time when millions of Americans are struggling, we need to think about whether we want to go back to a time when citizens were left to fend for themselves when situations arose that were beyond their control. Talking solely about greater personal responsibility and self-reliance without talking about shared responsibility and balancing the burden will increase the disparity and produce greater inequity.
This is simply not true. Charity was much greater before government took over the role. Churches were far more involved. The majority of poor in the US are nowhere near dying in the street as you make it sound. They do better than almost all of the rest of the world.
This is from 2005 but I found it interesting that Americas poor had so many amenities. https://www.heritage.org/research/reports/2011/07/what-is-poverty
Hope you realize these would be the working poor – or people who work 40 hours per week or sometimes multiple jobs. People who, if they did the same work in the 1950’s, would be upper middle class. Also, this article sites a lot of 1 time purchases and cable which is necessary to have television now therefore offers multiple tiers of service. You can have cable that doesn’t even get Comedy Central. I’ve had it. Anyway, I agree with the OP on balance, having been on both sides of the fence.
If you own a tv, you are not very poor compared to the rest of the world. According to the article almost everyone living in poverty in the US has a refrigerator, which implies that they live in a building (not on the street) and are able to put something in it.
Ok, but this is not a third world country (yet). We are commenting on an article about a 26 year old making $250k. The poor in our country can’t have tv? Rather have them with nothing to do, out on the streets with drugs and guns? I’m sorry, I find this viewpoint incredibly lacking in the reality of social responsibility. Please realize if the poor don’t have such things as tv and refrigerator, it degrades everyone’s wealth and safety.
No the poor should be working like the rest of us. They should be working harder, in fact, to escape poverty. Kansas and Maine just had studies on making work a requirement for welfare recipients. You should check it out.
I wish people would stow the I care more garbage.
Charities, like government assistance programs, are good at helping people subsist but not so much at helping people get ahead.
Well yes and no. Charities used to be places for the poor to meet with people who were volunteering. People that likely had a job and were willing to help others find a job. Government assistance is just a check in the mail without the work requirement.
We’ve spent trillions on the “war on poverty” in the last 55 years (if not tens of trillions). The poverty rate is the same (and that’s just fed gov’t and doesn’t include state, local, and charities). Giving people freebies or close to it does nothing to help them – and in fact arguably hurts them AND the taxpayers you steal from at gunpoint. There is a huge block of the population that is lazy, doesn’t want to work hard or even at all, takes advantage of people/government/family, etc. Why should someone who studied 30 hours a week for 16 years, works 60 hours a week going full steam ahead, all while staying drug and alcohol free and overall made good choices have to pay more in taxes because someone slacked off in HS with Ds, works 15-20 hrs a week at the bare minimum, can’t hold a job for more than 6-12 mo, does drugs and alcohol and decides to get knocked up to live off the government and/or trap someone in a relationship? Even if you believe in the government doing these things, you are much better off with state and local programs rather than a one size fits all federal program.
Charities, while flawed, are much better vehicles than government. Did you know that 50 years ago, Catholic hospitals provided 20% of healthcare in the US and the poor had free or effectively free care there? Today < 1%.
Having grown up dirt poor and only 1 gen removed from middle school drop outs and now making 275k/yr from working my butt off for basically my entire life, I get really irritated that I get taxed to death while 46% of households pay 0 federal income taxes.
“The poverty rate is the same” because the government doesn’t include its own spending in calculating whether or not a person falls below the poverty thresholds.
That doesn’t mean that the War on Poverty has been successful, but don’t act like that money disappeared.
The poor in America are unlike the poor in any other country:
“According to the government’s own surveys, 80 percent of poor households have air conditioning; nearly two-thirds have cable or satellite television; half have a personal computer; 40 percent have a wide-screen HDTV. Three-quarters own a car or truck; nearly a third has two or more vehicles.
Ninety-six percent of poor parents state that their children were never hungry at any time during the year because they could not afford food. Some 82 percent of poor adults reported that they were never hungry at any time in the prior year.”
– https://www.heritage.org/marriage-and-family/commentary/the-war-poverty-50-years-failure
This was interesting for me to read because despite being from the same state of California, my “market” is entirely different in terms of transparency. In local government, all the salaries and perks are publicly listed. Anyone can figure out what you make, and there’s almost no individual bargaining. Yet no one takes the time to go through the publicly listed information!
Thanks to Sam (who inspired me to join the blog-sphere and create a website) this is the majority of what I blog about: treating government entities as competitive employers instead of a lord/vassal relationship.
Reading articles like these I see an interesting dichotomy. The free marketplace you don’t know about others and really want to. Government employees could know, but usually don’t care!
As a former federal employee, I can say with a great degree of certainty, that while valuable, your insights will fall on deaf, disinterested ears.
I had to get out due to the sheer lazy, boring, inept culture that relied upon private sector consultants to sheer up the facade of government expertise.
I completely agree with you on the federal level. On the upside (for me) there has been the beginnings of a sea change in the local government scene in California. San Jose, Los Angeles, and San Diego all reduced costs in terms of salary and benefits only to look on in shock as many of the best and brightest employees shifted to nearby cities (which welcomed the shift with open arms).
“Free market” at work or entitled millennials that don’t feel the same loyalty to a single city? What’s the true cause?
As a complete amateur at economics I have no idea, but I’m fascinated by the show. Thanks for the capitalist insights!
Enter your city and its employees here – http://www.transparentcalifornia.com – to see some illuminating state salaries and employment packages (benefits and pension plans.
I meant employee category – school district, librarian, fire, police, etc.
Thanks! I love the website. I still like listing out the black and white numbers, but it’s always interesting to see who is maximizing their benefits.
I will long thought about joining the government to take a “retirement job”. But that wouldn’t be fair to say to all the hard-working government employees out there, especially those who work in the foreign service. But it is intriguing because of the government pension plan after 20 years of service or so. If you don’t like government work, how about joining the private sector? Or better yet, start your own business.
I apologize if I misrepresented myself. I LOVE my job, to the degree it annoys my less satisfied family and friends. I respect the private sector and try to learn from it. Thanks to emulating private sector employees changing jobs for advancement, I was able to switch employers and increase my pay while still doing the same job.
The pension system is a bonus (especially as most local government is still giving 2.7 % of salary per year compared to the federal 1.7%), and I don’t have the verve for my own business. Family, work, violin, blog: I feel like my IRA and 457 (b) account: max contribution given ;) .
Stealth Wealth all the way, baby! I can attest… when people think you have money then they expect things from you. If you do not pick up the check, or if you wear less expensive clothes, etc… you are a miser (AKA “cheap”). I’m sure envy is component too.
I do not see the value of Haseeb’s proclamation. Unless he is being paid by Airbnb for his PR stunt (maybe they are having a tough time getting quality engineers?)…
Perhaps Airbnb management really did team up with Haseeb to highlight how much Airbnb is paying, and for people to join them. Probably not, but could be.
Your point goes to these two points in my post:
2) Tech companies encourage income transparency. Airbnb didn’t instruct Haseeb to keep his compensation package quiet. As a result, one can conclude Airbnb has no problem with the world knowing how much their engineers make. Severance packages, on the other hand, are absolutely to be kept private by both parties. If tech companies are so open about how much they pay their employees, they should be more open to paying more taxes and helping the community of people who are being negatively affected by their high income earning employees.
3) Apply to tech companies and command a high salary. By highlighting Airbnb pays $250,000 in total comp for young engineers, they are inviting more people Haseeb’s age to apply for similar positions for similar total compensation. It’s only rational to conclude that if you are in your 30s, 40s, and 50s+, you will probably make in the $300,000s, $400,000s, and $500,000+. All existing employees at richly valued tech companies should immediately ask their managers for a raise if they have similar or more experience than Haseeb, and are making less than $250,000 a year.
Tough for me to say anyone should pay a higher price just because they make more.
I suppose if you disclose it you lose any advantage you have, but I think he disclosed it to help, not show off.
When I think Stealth Wealth, it is more how you act and spend vs how much you make.
No, I don’t think that’s moral – everyone should be treated equally. My small business tutors some kids in families with 10M+ (that’s the Bay Area for you!) and we charge the same rate for everyone, even though I’m sure we could “get away with it”.
Then why are we OK with a progressive tax rate system? Shouldn’t we all just pay a flat tax instead? Can’t have it both ways, can we?
We probably should have a flat tax. It would certainly make things simpler! After all, a flat tax is amoral. It just is. But a progressive tax – one that says because you earn more you have to pay more of what you earn – that gets into a moral debate. (People say we can’t legislate morality – but that is 100% untrue. Everything we regulate is about morality – speed limits in school zones, not stealing from others, etc.) People think it is unfair that rich get richer and they should give some back – but the wealthy in our country are incredibly generous! And who are we to tell them what they have to spend their money on? Every dollar that is taxed is less efficient than dollars that are spent or donated by individuals. So let everyone pay the same and fix the system the right way… not with bandaids and duct tape – such as a progressive tax system, etc!
I would say that life itself is regressive, therefore taxes should be just progressive enough to offset the natural regressivity of life.
e.g. renting is regressive and more expensive in the long term relative to owning, and nobody is born owning a home. Unless a person is born independently wealthy or otherwise acquires a home without earning it, they must clear various hurdles to purchase a home. A tax structure could be made sufficiently progressive to offset this natural regressivity of life, without being confiscatory.
A real flat tax or a faux flat tax? A 10% tax across the board isn’t really flat. A person making 50k/yr pays 5k and a person making 250k/yr pays $25k for the same cops, govt, etc. That being said, I’d take either.
A 10-20% flat tax above a minimum income level per person/family… e.g. flat tax over $32,000 for singles. Simplifies the industry. And will probably INCREASE tax receipts as it will lower tax evaders and increase the breadth so more people pitch in.
The problem with the tech companies is that, unlike Wall St, point 3 doesn’t happen.
His real salary is 130k. The RSUs arent liquid, vest over time, and arent guaranteed to keep coming beyond the signing bonus commitment. Cash is king when you need to pay rent, not fake RSUs in a pre IPO company that *might* tank
The base salaries cap out, for the most senior people, at roughly $200k tops. There are no 300, 400, 500k whatever jobs
The tech companies *only* pay about what he negotiated.
If you can do that job at 12, great. At 50? Less great but that works.
Its one thing people dont get about tech. The “ever young” model means you have these insane new hire salaries, and then stasis and a lack of job growth.
You can “demand more”, but you won’t get it. The industry is a cabal and there is no reason for them to pay “more for experience” since, in most roles, the *objective* value of “experience” is tricky to prove.
As the startup bubble bursts there will be no more stock grant lotto winners which is the *only* way to make real money in tech as rank and file.
When that happens the economics of the area will change.
As it is today, people like this guy make 130k base, but his 50 year old peers, 4 levels higher, are making only 60k or so base higher max (if there even are any – a place like AirBnB likely pushes mature workers out before they ever develop that kind of seniority)
The tech industry is inverted in a way no previous lucrative industry ever has been.
It creates infinitely wealthy founders, well paid top level management and “rock star” techs, and extremely wealthy pre IPO risk takers IF it all works out. Down the line it creates decent income jobs, but with a rock solid glass ceiling and Logans Run style agesit culture.
Such great insights. Thank you.
Although, Google and Facebook do pay those $300,000, $400,000, $500,000+ jobs because folks who make that tell me, and I’ve had Google applicants write $400,000 in annual income during my rental application before.
The startup bubble is deflating, but I’ll happily bet Airbnb goes public by end of 2020 at a valuation higher than $24B. Uber will probably do the same by end 2020 as well at a higher valuation. I’m not sure about many of the other companies.
I’ve long wondered what your long term take on the “startup bubble” is. You seem to believe there will continue to be unicorns, albeit fewer than in the past, but those will be enough to keep interest stoked in the SV area.
Also interesting to note that you talk about real estate values being affected by new cash rich millionaires, rather than just the job market or health of the startup market as a whole.
Real estate is like a public company. Only a small float of 5% – 20% affects the entire value of the company. But real estate has a public float of less than 1%. And the smaller the float, the higher the demand. It only takes an injection of several hundred new millionaires to move the ENTIRE market or at least market category in certain areas e.g. Pacific Heights single family homes.
Someone making $400k wants to rent? WTH??
Indeed. Check it https://www.financialsamurai.com/what-kind-of-people-spend-over-a-hundred-grand-a-year-on-rent/
I wonder if the 400k and 500k incomes are due to selling stock from an earlier period or if that is typical of a recent middle aged hire. Those incomes seem high for individual contributer and middle managers.
The average age of facebook employees is 26 so they dont seem too interested in hiring middle aged people let alone paying them large salaries.
Yes, definitely. RSUs of public companies have real value at time of sale. Every year you work, you get another tranche of RSUs that vest over 4 years. It is ongoing, which is why when the time comes to leave, people need to engineer their layoff, or else they will leave at least 3 years worth of an unvested tranche on the table.
If I quit, I would have left 2 years of RSUs, and 7 years of a partner investment from my day job. It is still paying out in 2017!
What industry do you work in?
Not typical middle age/long experience comp for an IC or MM even at the “big names” (ask me how I know… LOL)
Definitely ongoing RSU sell-off. With the exception of upper management and *rock star* pay, *cash* comp is never that much outside of sales (and Google and Facebook have shit sales orgs)
A Cisco or Oracle person saying $400k? Definitely could be cash comp if they are a power sales person.
Google or Facebook? Unless they have a Wiki entry, almost certainly annual RSU sell off (which IMO is a *big* no no)
Anyway, this was a really solid entry FS. I very much agree with your meta point here and, personally, I don’t think transparency at this level is healthy at all. But it seems these youngins are determined to try it!
I’m curious as to why you say the RSU sell off is a “big no no”. Is it because of tax reasons? Were you referring to the employee or the company?
Thanks
You don’t set the rent, the market does. You can discount the rent from the market rate by however much you like, but could be courting discrimination issues if it was ever discovered. As a landlord, best to treat everyone the same.
I like how you talk about SF real estate as a proxy for tech. I indirectly made a lot of money out of pot, by owning real estate in Denver through the legalization process. More due to accident than design, about 25% of my net worth is thanks to the druggies. This non-user will be forever grateful.
True, but there is wiggle room during the lease renewal. Most landlords I know don’t raise the rent to market. They do what I do and raise the amounts enough to cover their increase maintenance costs, property taxes, etc.
You can raise the rent by 10% w/ a 30 day notice in SF, and by 60% (if the market will take it) w/ a 60 day notice in SF. There are rules for how much you can raise the rent depending on where you own.
Hence, if tech companies are OK with telling the world how much they pay their employees, given we can all do basic math, instead of not raising up to market in a rising rental environment, do so within the extent of the law.
By not raising the rent, landlords are leaving money on the table and exacerbating the housing crisis by creating more demand than necessary. Higher rents REDUCE demand for housing, reduces congestion, reduces pollution, reduces displacement of long term residents who do not earn as much, and increases the quality of life for everyone.
Question for you, Sam. Don’t you basically reveal your rough income on this blog? Has that ever caused a problem for you?
I work for a state-supported organization, so my base salary is accessible to anyone that can use a web browser. What that doesn’t include is extra compensation from my job (grants, summer work, etc.) and certainly not any of my self-employment consulting income, which some years doubles my employer-provided salary.
I’ve been thinking about this since I started blogging. The circle of people around me have no clue I basically double my base salary. All they know is I make roughly the same base as them and live roughly the same lifestyle as them. I’ve kept the blog anonymous for this reason. But as the blog has grown surprisingly quickly, I’ve had some ideas for products that just don’t exist right now. I’m pretty much an established expert in the area around the ideas, but being anonymous can hamper my ability to grow them if I do decide to purse them as another income stream.
Have you faced similar issues blogging about personal finance, your real estate transactions, and blogging about making money blogging? Did you used to blog anonymously?
Yes, I’ve revealed my passive income journey from ~$80,000 in 2012 to $175,000 in my last update in 2015. But I also don’t have to report to anybody or fear pissing a manager off who decides how much I make and whether I’ll be promoted anymore. I also have a fixed mortgage payment versus renting.
If you depend on someone to pay and promote you, it is best to keep low key and make yourself look much less wealthy than you are. I once had a new college graduate roll in to work in his $50,000 SUV his parents bought him. His managers thought it best to allocate more money to his colleague who needed it more. He was pissed.
I’m almost 40 and live in SF. Making $200,000 is nothing special here due to the high cost of living. I don’t want to be special. I want to be average. It’s different if you are 26 and say you make $250K.
For your blogging related questions, the key is consistency. Your consistency and your content will do much more for your growth than just saying you make XYZ. You’ve got to demonstrate the how, which Haseeb did very well in his post. How long have you been writing? I’ve noticed that a lot more bloggers are commenting after I started writing about blogging.
Good point. Neither do I, really. Salary is public database, and my side income is known by those above. My circle of friends are great people; however, I see how they get about money with my business professor friend, who makes twice the base salary. Best to make money something that isn’t even an issue with friends, so the last thing I want is them finding my blog. You are right that no one in SF is going to start bugging you about money with $200k income. I passed up a job making close to that a little over a year ago in SF, actually more liquid than Haseeb (but I’ve got more degrees than I can count and I’m right around your age.)
I’ve been writing professionally for years, and I’ve had a very successful blog where I’m not anonymous for years. Nothing at all to do with money, so not monetizable other than indirectly leading to that doubling-income consulting work. Definitely not the one linked here. The PF blog is the one that has been getting big relatively fast for God knows what reason.
When I think about it, my idea has nothing to do with how much I make or made, so it doesn’t make any difference at all to ever talk about making XYZ. I’ll just keep writing, letting people assume I know what I’m talking about, and either it works for them or not, “credentials” not mattering anyway on the internet.
I was reading FS before I started blogging, BTW. You kind of pushed me that way. So … yeah … thanks for that. Now I have less time! If you make it to Prague in May, send me an email. I owe you a good Czech beer for the great content you’ve provided.
I voted “yes,” but only because it is hard for me to show any sympathy toward someone who freely discloses such a high income. In my opinion, you should not expect any of the benefits of stealth wealth if you choose not to practice stealth wealth. If you tell the world everything, you put a fat target on your back and shouldn’t be surprised if you get raked across the hot coals from time to time.
People used to be commended or admired for succeeding, now they should get raked across the coals? Go Bernie!
Given 74% of the poll voters say the rich shouldn’t pay more for the same thing just because they are rich, Bernie won’t win.
Hi Sam, I was using the Go Bernie reference to highlight the anger so many people have against financially successful people. It seems to be more acceptable to “rake an engineer over the coals” because he was very successful negotiating his pay package than to congratulate him or emulate the work and effort it took to earn his position.
I understand people’s frustration with our country’s seemingly unfair economic situation. What I don’t understand is why people want to bring the financially successful down rather than raising themselves up. Actually I do, it’s easier.
Thanks, Bill
We must adapt to the times, or suffer the consequences. There’s always a positive side to things as well. The relentless pursuit of money and riches can get very soul-sucking and tiring after a while. The expectation of higher tax rates at higher income levels helped give me another reason to leave Corporate America for good in 2012. I needed all the planning, analysis, and courage I could get to go out on my own. And now, the freedom feels wonderful!
I don’t think they should be raked across the coals for simply succeeding. But succeeding and gloating about it is asking for trouble, IMO.
I chose other because I think that, as a landlord, you’re flirting with disaster by not treating your tenants equally. I don’t know off hand whether doing the things you describe would be grounds for a lawsuit, but I would talk to a fair housing lawyer before you do it just to be safe.
Higher earners can afford more, and they/we do pay more in terms of higher taxes. But I don’t think we need to pay more for everything. I’ve disclosed my income and net worth on my blog, too, and I understand that that limits the amount of sympathy someone has for me. That’s fine. But does that mean a store shouldn’t honor a coupon if I try to use one? No.
Check out the conclusion of the post:
“Even though we have tax discrimination where higher income earners pay a higher marginal tax rate, rent price discrimination based on income or wealth is not allowed (e.g. artists shall pay $1,500, techies shall pay $3,000). Instead, you can only list one price and see if there is demand and adjust from there.
If you want to give a rent discount to a lower income earning teacher or service worker, definitely do so. I rented out a small unit to a middle school teacher for 30% – 50% below market rent for years because she only made about $36,000 and was doing important work to help kids.
It’s during the lease renewal period when you should be more aggressive in raising rents on highly compensated employees. Landlords have been very timid in raising rents on their non-rent controlled properties in the past. Because I felt bad, I only raised the rent by 2-3% a year after a couple years of no rent increase. But after reading Haseeb’s post, I don’t feel bad any more.”
My contractor charges more for work in more expensive neighborhoods than less expensive neighborhoods. Neither party seems to mind. I told him I put my life savings into my fixer, and to look at the car I drive During our negotiation process. I think he pounded me less as a result.
Good approach with your contractor. I do a similar thing. The ones I work with also see my fairly modest car, and often they see me in there doing certain tasks that I am capable of doing to try to keep the costs down (changing electrical outlets, etc.). So they know I’m not Mr. Moneybags just shelling out cash without feeling the pinch. But remember also that negotiating with contractors is different than negotiating with your landlord. It’s a lot harder to pick up and move your household than it is to say a contractor’s price is too high and to call for a competing bid.
I saw what you wrote at the conclusion, and I don’t think there’s anything objectionable about “tax discrimination” because it’s what our elected officials impose on us. Theoretically, we do it to ourselves. I also don’t have a problem with people giving discounts to certain people for whatever reasons they like.
The only reason I was expressing caution is because if you have a pattern of charging higher rent from the outset to high earners and lower rent to lower earners, you might be accused of housing discrimination. If you charge them the same rent at the outset, but only give rent raises to the high earners, you might still be accused of housing discrimination. It seems silly that someone might allege discrimination based on earning more money, but discrimination can come in all sorts of forms, and it doesn’t necessarily have to fall under a traditionally protected class (e.g., women, families with children, race, religion). I’ve heard of discrimination actions being brought because a landlord rejected someone for having a tattoo (think butterfly tattoo, not gang-related tattoo).
I could just foresee the possibility that someone might someday try to haul you into court claiming that because he/she earns a higher income, you’re discriminating and charging higher than your regular rent rate. Maybe they earned $150k per year at the time they moved in, and you charged your regular rent rate, but you gave them an increase and not the schoolteacher next door. Let’s say this tenant’s income dropped by half, and you just didn’t know about it. Or let’s say this tenant now has to pay for their parents’ care, and they can’t afford a bigger rent increase. Obviously not all cases will be like that, but it only takes one to make a legal mess for you.
I suggest people operate within their legal rights of what they can do. In SF, you can legally increase the rent by UP TO 10% if you provide a 30 day notice on your SFH or condo (not rent controlled). In other words, if you are used to never increasing rent, or only increasing rent by 2-3% to cover your costs like I do, until the tenant moves out, then absolutely raise the rent up to what you think the tenant is willing to pay up to 10%.
For example, if Haseeb is paying $3,500/month for a 1 bedroom condo with a partner before telling the world he went from a $100,000 salary to a $250,000 total compensation package, raising the rent by $350/month shouldn’t be a big deal, especially if the comps have moved up to $3,800+ as well since he first moved in. I don’t think Haseeb or others who’ve declared how much they make publicly would mind, otherwise they wouldn’t do so.
As a recipient of the higher rent, you can then use the money to redistribute to those who are struggling!
Or why not raise the rents on everyone, and then donate the difference to a charity that might be better suited to redistribute the money? Habitat for Humanity, maybe? Your schoolteacher might be a stealth inheritor of several hundred thousand dollars from her relatives, and might not be disclosing it to you. Your “rich” folks might be struggling more than the schoolteacher, especially if they are assisting other relatives. Rather than play Robin Hood yourself with incomplete information, isn’t it better to just get market rents from everyone, donate as much as you feel comfortable donating, and let the charities figure out who deserves/needs help? The ones who really, really need help are the ones who can’t afford an apartment at all! :)
I love the economic argument about incomplete and imperfect information; however, does it matter? Altruism is selfish. As long as FS feels he’s helping a destitute schoolteacher in San Francisco, then isn’t that good enough? He’s not granting the discount because of an innate need to do so, rather he’s doing it because he likes the feeling of helping. As much as I hate to say it, Ayn Rand was right there. Also it seemed to me the teacher was being “charged” the same rent as everyone else and then getting a portion taken off, but I could have misinterpreted.
Sure, he can do whatever he likes. I just thought he should be careful in how he applies his altruism because as landlords, we’re subject to Fair Housing requirements, and if he has a policy of charging one subset of people one rent amount and another subset of people a different rent amount, he could be risking a discrimination claim. Even if you “charge” the same rent as the neighbor but then routinely credit back some amount as a discount, that’s open to scrutiny. He might be safer charging everyone the exact same rent every month, and then giving an annual cash gift to the schoolteacher (coinciding with Christmas or Teacher Appreciation Day or something) in an amount equal to the discount he would have liked to have given.
The other point I was making is that he may not be helping the right people as much as he thinks he is, but you’re right that it’s his choice. I tend to be a meaner landlord than Sam is in terms of giving tenants financial breaks, but that’s because of my personal experience in seeing tenants take it for granted and expecting more, or in having them blow the savings as a down payment on rent-to-own furniture and then not having enough money to pay the rent the following month, etc. I sometimes give little, one-off breaks instead. But to each his own. Not the first time Sam and I have disagreed. :)
What do you think is going to happen when you charge “Haseeb” more than you charge “Joe”? Or are you only going to charge higher rents to high earners who are white males?
I would get more rent from Haseeb if I charged Habeeb more rent. Where does Joe work and how much does he make? Is he telling me he makes a lot and therefore can afford more? Does he live with Haseeb, or is he a new prospective tenant at a different period of time with therefore different market dynamics?
What does white male have to do with an economic transaction? Thanks for the clarification in your line of thought.
Hurray, Haseeb! Not only for successfully negotiating a tremendous working arrangement, but for bringing transparency into the real world. I believe the non-disclosures and hush mentality about paychecks is a tool to continue paying less to certain people, think racial and gender bias. It reminds me of a molester saying “don’t tell”. So blowing that out of the water lets everyone have the chance to know what they could be negotiating toward.
I wouldn’t want to see anything happen that would punish this forthright behavior. It would be sad to have the rent raised because you chose to be transparent and help other people. However, with this information, you could certainly raise rents, if needed. Your statement about corporations paying taxes and giving back to the community is so important. The longer they wait to correct this imbalance, the angrier people get. I do not want to live in a civil war environment. I don’t even want to start with boycotts. The worst offenders happen to be companies I adore, but I will do it, if the Panama papers don’t make a difference.
We think it is foolish when most wealthy people or high-earners share how much money they have or make. We voted “other” because pricing should be fair regardless of one’s means. Higher-earners are already “paying more” for rent by paying far more taxes. It may not have been wise for Haseeb to share his pay, but at least in his case, he is giving most of the money away. We don’t believe he deserves to pay more in rent.
I’ll admit, I’ve been curious before to know how much certain colleagues of mine make. I think open honest posts like this one are eye opening to many and I say… bring on more! At the same time I don’t necessarily believe in charging rich people more for the same product. You make some good points, though, on helping people out who are doing good in our community (school teacher), however you’re also a small business owner. We can’t afford large corporations picking and choosing how much they sell a product and service, solely based on income.
I’m a pretty curious person myself and have shared my income in the past as well. It’s not a great idea (sharing), since it really makes most people angry about your ‘luck’. At least in my case, while there’s a bit of luck as well, we do talk about MANY years of hard work and dedication to a huge passion that turned into a lucrative business. I’ve put tens of thousands of work-hours and thousands of dollars into my web design business, so that I can now live a somewhat comfortable life. But, most people don’t care about your efforts, they just judge you for your current situation.