A couple of days ago Fortune magazine talked to Ed Lee about the city’s moratorium (.pdf of bill) on its tax on stock options. (Video of the Fortune interview here.) Lee explains why the city passed the legislation and has some kind words for San Francisco-based Zynga, the maker of Farmville and other games that have cut your productivity in half.

Here’s an edited transcript:

We’re one of the very few cities…where we actually tax stock options as part of compensation… We didn’t realize that stock options (are) something very special to tech companies, and as they’ve grown they’ve educated us about how valuable those stock options are.

Some of them at the beginning, when they’re offering (them) to very key employees, they’re not worth much of anything. But as the value of the company increases, because of the product rollout they have with the brilliant engineers they hire, then those stocks become valuable over time. When they’re about to be paid out, that’s when they want to retain those employees the most.

Our taxing of those (was) viewed as a punishment to companies that had been successful. So we thought as a matter of course that many of the companies would suffer when they went to public stock and this changeover would really hurt them. A slew of small companies whose names you wouldn’t even recognize were concerned they’d have to move out of the city to avoid that tax.

Although there’s one very big company that’s rumored to be going public very soon. This will have a big impact on Zynga employees…

Absolutely. And Zynga had just done a marvelous thing for the city. They signed a long-term lease for some 270,000 square feet in the southern part of Mission Bay and they’re a major game developer, and we want all those game developers to be here because they employ the kind of engineers that are graduating from the wonderful Bay Area schools and these are great long-term jobs.

For a different view on the stock-options issue, The Bay Guardian’s Tim Redmond had one back in May.

Anyway, Zynga, according to everyone on the Internet, is set to file for an IPO. So a lot of those employees are about to get really, really paid

Video: Ed Lee Hearts Zynga 30 June,2011Jon Brooks

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