Economy

A New Model For Economic Growth: Making More Employees Owners

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Head of Public Policy at Carta.

If ever there was a time to reflect on the state of inequality in this country — to consider the consequences of wealth disparity, and how the nation might do better — it’s now. In the past year, those with less suffered more. And those with more amassed more.

In lower-income communities, people lost more jobs and faced higher rates of eviction, and those who lost jobs or income during the pandemic were more likely to dip into retirement savings to pay bills. Those in higher income brackets were more likely to have padded their savings accounts, and homeowners and investors benefited from real estate appreciation and made disproportionate gains in a rebounding stock market, respectively.

Lawmakers have scrambled to provide quick relief to those in need. Legislators passed stimulus checks, voted on child care stipends and restarted conversations about the minimum wage. These measures are important. But they only do so much. Too many people are just keeping their heads above water.

Looking ahead, they need to consider solutions that will help more Americans build real, sustainable wealth. Building an ownership economy is one of those solutions. As the head of public policy at Carta — an equity management firm — I’ve seen firsthand how transformational ownership can be.

In an ownership economy, more people own a stake in the companies they work for. That means more people are granted equity as a part of their job offers — atop their base salary.

In this kind of economy, more people get access to the upsides of equity appreciation. They have a chance to participate in the profits they helped create — ultimately reinvesting in themselves, their families and their communities.

The idea of employee ownership isn’t new. But it also isn’t common. Too many Americans today don’t own equity in the companies for which they work. They’re paid an annual or hourly wage, perhaps a cash bonus, but they don’t have a stake in the businesses they help build.

In fact, according to the latest decade of available data, the percentage of all private sector workers receiving stock options actually went down from 2002 to 2014.

Meanwhile, employees at public companies with ownership models have 7% higher wages on average relative to companies that do not provide broad-based ownership. Further, employers become more competitive because their people are more engaged and less likely to leave. The broader economy benefits, too, from higher productivity, greater innovation and more evenly distributed wealth. 

Importantly, a livelihood based on wages alone is transitory. When the work stops, so does the income. But a livelihood based on equity is more durable. The nation needs to update its policies to build up this more sustainable model.

To start, legislators should consider how they might drive companies to create more employee-owners. Lawmakers should craft a tax code that incentivizes companies to provide equity to the majority of their workforce, driving ownership beyond the executive ranks.

The tax code should help employee-owners realize the value of their hard-earned ownership stakes by aligning taxes with the timing of selling shares. Some equity owners are taxed on shares they have yet to sell. This may be fine for long-tenured executives who have the money to pay, but for so many people early in their career or at less senior levels, this means they owe taxes without the money in hand to pay it.

Further, the tax code should give employees more time to purchase the equity they earned even after they leave a company. Right now, employees have a limited window — the so-called “post-termination exercise window” — to purchase shares. And it isn’t cheap. They have to pay to purchase vested options and to cover the taxes from their gains. Employees without cash on hand or jobs lined up end up leaving hard-earned money on the table. They deserve better.

And finally, policymakers should continue to bolster private market liquidity, making it so employee-owners in private companies can sell their ownership stakes and monetize their value. 

As the nation emerges from this pandemic, it desperately needs policies to help the people who have suffered to bounce back. It also needs policies to help people thrive in times to come.

Building an ownership economy, with the right policies and private sector infrastructure in place, can be transformational. Equity is the kind of compensation that changes lives. It helps people pay off debt, buy homes and build wealth.

The pandemic cast a harsh light on America’s inequalities. Those who owned assets did well, and those who did not, struggled. The nation can and should use that same light moving forward — to build a more inclusive ownership economy.


Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?


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