The Future of Equity Compensation

I'm Adrian Eaton the dean of the School of Management Labor Relations at Ruckers University the State University of New Jersey um which is the host of The Institute for the study of employee ownership and profit sharing and um again because Joe blasy couldn't be here I am channeling Joseph a bit today so as we're settling in I hope that you all had productive conversations over lunch whether they were formally in breakout groups or your own uh structured break breakout group um I'm just going to say a few things and then turn things over to um Adria to run our next panel um so one thing is again to thank the um thank the uh Aspen and rutr teams and I won't name everybody again but you've seen them running around and doing all the things that they need to do and it's just I think we would all agree very well organized except maybe the internet yesterday which is all the US capitals fault not not Aspen or Rucker's fault if we want to assign blame um last year if some of you may remember I did some kind of summary of what the themes were and learning I'd taken extensive notes over two days I am not going to do that again and I haven't taken those kind of notes but I do want to just say a couple things that I've I've heard over the last day and a half so far and we may hear more along these lines or new things um one I think a a thing that we haven't really talked about in this community before is the idea of employee owned companies merging with taking over buying um other employee owned companies are helping to drive employee ownership and companies they may acquire I think this is very interesting I don't think there's much research on that and that's something that perhaps we um need to focus on or have a whole panel on next time around a second thing that I've really enjoyed um hearing about and thinking about more and was glad to see that we have a fact sheet from The Institute about is about employ ownership in rural uh America and to say I spent a vacation last May driving around Kansas Oklahoma and Eastern Colorado don't ask me why I can explain I was hitting my 50 states which I did successfully but it was quite devastating to see the um the lack of economic activity in small town after small town and to kind of understand you know the the political concerns coming out of those kinds of places and so I think this attention to small town small town in Rural America is really important I want to say just one other thing which is a little bit of a self-criticism but increasingly um those of you academics may be aware of this um our federal funders um our universities are thinking more and more about the role of the studied in studies um and one of the things coming out we were talking about this over lunch um about from the disabilities movement originally nothing nothing about us without us and we're starting to think about what that means for the research Enterprise so again for disabled workers we shouldn't be doing research on disability um without including disabled workers in consultation there's a faculty member at ruers who does work on addiction and the addiction Community should be part of structuring research and we're really hoping to move forward with some of these ideas um at the school of management and Labor Relations but um it really stes me and I know some of others have said this to me over the last day and a half too that it would be great to have some actual worker voices in these conversations that we're we're having and our unions and co-ops program which is part of the Institute has been part of the Institute um did that successfully one time it's not a trivial chore to figure out how to make that work I recognize that completely but I think it would be a wonderful goal to try and figure out how to bring work or owners to these conversations and hear from them directly so with that I will stop and turn things over to my dear colleague Adria sharf again thank you so much Dean Eaton I really appreciate those synthetic comments and especially that last point about the importance of including worker voices um I'm Adria sharf I'm an I'm an associate director at The Institute for the study of employee ownership and profit sharing with which many of you know is housed within the Ruckers University School of Management and labor relations and I'm very delighted to be here with you this afternoon to moderate this what will be a really interesting discussion with an exceptional panel focused on the future of equity compensation and I am stepping in here to substitute for my colleague Joseph blasy who has been a colleague friend and mentor to many in this room um and who as some of you know had to go to Pennsylvania for a very serious family medical emergency so I know all of us who know Joseph are sending um are good wishes to him uh today and Joseph really put some thought into crafting this discussion I know he you know is the founder of our Institute and he really sees Equity compensation as Central to the larger conversation about employee ownership the larger kind of employee ownership movement um and so I'm honored to be attempt to step into his shoes he did share some notes with me so I will try to represent um his vision as best I can and I'm sure I'll add some of my own stamp to it too but first I want to start by welcoming our panel of experts um and I'll just briefly kind of just very briefly introduce bios as you know are on the website and in the app um but starting at the end of the table we have Anthony simino who's vice president and head of policy at Carta we have Barbara baksha who is executive director of the National Association of stock plan professionals Analisa Miller is founding ex founding executive director of ownership works and Bob patrelli is senior advisor of in tandem Capital Partners so welcome one and all and I'm looking forward to our our conversation um I think before I share Joseph's comments I just want to kind of like acknowledge a little linguistic shift in terms of language we've been talking kind of for the last day and a half about employee ownership now we're going to kind of shift and use this language of equity compensation and this might be really clear to everyone in this room but just sort of for the sake of inclusion knowing people are streaming in too just to say kind of explicitly by Equity compensation we basically mean stock-based compensation and the idea of equity compensation and the idea of employee ownership obviously are very closely tied because a share of stock is a unit of ownership in a company so if you're paying someone in terms of equity or in terms of shares of stock you're in fact in a sense sharing some portion of ownership with employees what you may not be sharing like the whole bucket of ownership rights with those employees and the the sort of bucket of equity compensation includes lots of specific vehicles um from stock grants um including rsus or restricted stock units many of us have heard of stock options Employee Stock purchase plans are a very common form of equity compensation in publicly traded companies um and I think we'll touch on probably many of those um many of those here today so I just wanted to kind of Define some terms um so what Joseph wanted me to share here in framing he wanted to welcome our esteemed panel um he said he really wanted to make two main quick points in framing um first he wanted to say that in his view employee share ownership in the United States is a coin with two sides there's the ESOP side which we've talked a lot about so far and then there's this Equity compensation side and this panel so this panel is about the non-op equity compensation side of that employee share ownership coin um esops Employee Stock ownership plans have about 11 million active employees with 4 million retired participants um still receiving benefits or about 15 million employees involved esops are the largest broad-based Equity ownership phenomenon in the United States and in American history to date and as many know the ESOP is like employee ownership in the form of a retirement plan and it has some particular features including the fact that it's statuto inclusive so if you're a company that adopts an ESOP you're you don't have the discretion to offer stock to some of your employees you have to kind of follow the federal pension rules and include um all or most of your workers there's some asteris and specificity there but in general esops are by law inclusive um and then the other half of the the sort of the employee share ownership coin Equity compensation covers Joseph estimates about 11 million employees although we don't have 100% definitive estimates of that number and Joseph emphasized that unlike esops these plans are not broad-based or are not for the most part broad-based there are some exceptions and then the second Point Joseph wants to announce that the ruers Institute last year set up the shares laboratory which is kind of the first um laboratory of its type and Doug Cruz is here who's been closely involved others here have been closely involved but it's um producing regular quarterly reports using nationally representative data um looking at patterns of equity own ownership Nationwide among American workers um and looking specifically at disparities so a couple of our recent reports have focused in very carefully on the racial dis the really unconscionable and extreme racial disparities in equity ownership and the the gender disparities as well um okay Joseph closed with employee share ownership in the US nationally will not go anywhere unless the equity compensation side of the coin is seriously expanded um and we have asked the members of this panel to have a wide- ranging discussion on how we how we might do that okay with that thank you um with that I'd love to invite um you all maybe just to introduce yourself share a bit about your work and we touched on the issue of disparities or kind of gaps in inequities in terms of equity ownership so if you could introduce yourself in your work and then sort of speak a little bit to those like in what way does your work touch on that that issue I don't know Anthony if you'd like to start yeah uh well first off uh thanks so much for having me uh the Aspen Institute and Ruckers obviously uh my name is Anthony smino I lead the public policy team at Carta an equity management platform that is built around creating more owners that largely started through cap table Administration in the Venture space but has grown to not only more traditional businesses but also the firms whether those are venture-backed or PE backed firms that invest in them all for the goal of expanding ownership in that space so just to to touch on a couple of the points I think and folks in this room are very familiar we're at a key moment in the ownership economy discussion and I hope when we look back it'll be an inflection point and the reason why I think it's a key moment is one even in the Venture space where employee ownership is actually standard over 2022 to 2023 we actually saw the proportion of equity an average employee would get in that company declined by about 35% now that decline could reflect anything from Equity declines as a result people were indexing less for it during this kind of General contraction um but we've seen a decline and that has some negative outcomes but I think the other big thing is what you just pointed out in 2018 CIS started studying the equity Gap um and so when everybody was focused on salary we have cap table data for around 42,000 companies and we realized the disparity between at the time gender women were getting 47 cents on the dollar in equity compared to men each year after we've built out an in ated to include race and ethnicity geography parents versus non-parents and unfortunately we've not seen these Trends really reverse themselves but as negative as that all sounds why I think that this still can be an inflection point rather than a retrenchment is because increasingly we're seeing more people interested in talking about employee ownership and not just through the ESOP plans but through these wide ranging different vehicles and although some of that has gone back a little bit we're now seeing more and I'm sure my colleagues will talk about this more investors interested in this more traditional businesses get interested in this and seeing the virtue but also the value and employee ownership and I think if we can continue to build on this momentum we can turn it into a flywheel and hopefully we'll look back and see this as the opportunity to do that thank you so much Barb thanks uh so I am I'm Barb Buckshot I'm the executive director for the National Association of stock plan professionals so if you if you think about the companies that you've maybe heard of in the news that offer stock options or restricted stock units or an employee stock purchase plan to their employees someone at that company usually a team of people at that company has to oversee how those plans work and that team would be a member of my organization uh and we are we're there to provide support to those individuals that are overseeing those Equity compensation plans so we offer offer a number of resources around Equity compensation we have uh we we have chapters across the country we have an annual conference we offer a lot of Education we also conduct surveys of our members around the types of equity compensation that they are offering who they're offering that compensation to at their employees and I'm going to talk about some of those survey results uh in a little bit hopefully um and uh and I also um one thing I want to share I I'm a True Believer in equity compensation I really like in terms of the coin that you talked about I'm squarely on the equity compensation side I know barely anything about the other side but uh but I really believe that Equity compensation can be lifechanging for the employees that receive it and I believe that because it was life-changing for me uh in 1994 I moved to California I was uh I was just uh really fresh out of college uh I came come from a very working class background and in getting to California I moved from Chicago just getting to California getting settled out there it took all my money I was down to nothing in my savings account and uh but luckily I scored this job at this little startup and this startup granted me uh some stock appreciation rights or some stock options and uh and then that startup got acquired by a publicly held company and that publicly held company had an employee stock purchase plan and it granted me some more Equity Awards and so in the six years from when I moved to California and I had nothing to 2000 I had a down payment on a house and I had it because of my Equity compensation and uh and that that that purchase like having a house that changed everything for me it allowed me to reach a level of financial stability that would have taken me a lot longer to reach and unfortunately I think the current environment for Equity compensation has shifted and when I when I talk later about my data I'm going to talk a little bit about how we've seen it shifted but my story if you move that story forward 10 years I'm not in the same boat today things have changed so I'm going to talk about that when I get to my data but I really think that if we can if we can sort of reverse that Trend that we're seeing and uh encourage more companies to Grant Equity more broadly we can make a big difference in the lives of employees thank you so much we'll definitely turn come back to your data in just a minute Analisa thank you so much for the invitation to be here and thank you for sharing that story it's very energizing and inspiring and I think why we're all here um I'm Analisa Miller I'm the executive director of ownership Works we're a nonprofit organization that was founded about two and a half years ago and we work with investors and companies to implement broad-based employee ownership programs which fall in the the coin of equity-based compensation so these programs are grants of stock appreciation rights restricted stock units um they are granted at no cost to the employees that participate and they are broad-based so the companies that we work with make a commitment to include all employees at the company um that we work with with access to these types of equity based compensation um we work with um private Equity firms we have 30 private Equity partners that have joined us and made commitments to implem in their portfolio companies but we're also starting to work with public companies and family-owned businesses as well we're not a business succession strategy these are um companies that are not looking to exit but the these um um employee ownership plans are funded by the current owners or investors in the company itself um I think you know on the the data that you shared around um racial disparities in in wealth and stock ownership so um one of the things I often share and folks in the room might know this but um corporate equities is the single largest driver of the the the disparity in ownership of corporate equities is the single largest driver of the wealth Gap and so the value of corporate equities has exploded since 1989 um but the vast majority of that wealth has been captured by the top 10% of households and so the bottom 50% of all households has maintained pretty much this consistent share of um ownership of corporate Equity is around just about 1% and that gets more exacerbated around um racial lines and one of the things that is just staggering to me is that you know you can look in the last year last few decades and see fluctuation in the black white wealth Gap but it still today remains larger than it was in 1983 so we have a long way to go in in making a difference here and getting people access to um stock ownership at work I think is a really meaningful way to help address this Gap particularly is the other Pathways to ownership are getting harder and harder right it's getting harder to own a house um which has been for for many ways the way working um folks have been able to have some ownership and build some wealth and security on on employee ownership and the potential to reach black um and Latino workers in particular I think you know the the current owners and investors are The Gatekeepers right they have to decide to want to share ownership and this work tends to resonate with like mission-minded CEOs and investors right they get this idea of oh wait yes we typically they'll have some form of equity based compensation it's it's usually Senior Management you share this idea of include everyone and there's mission-minded CEOs and investors that are like oh that makes a ton of sense let's do it but there's a whole universe of investors and CEOs that they're like okay but and there's you know I I think there's other ways that we can think about Financial Security or other opportunities and what we're really focused on is making the business case around equity-based compensation and how it can benefit companies so that we can get more beyond the miss minded CEOs and investors to the folks who are really thinking about I just need to make this business stronger and profitable and how can employ ownership help me do that I think that's really critical to reaching workers of color through this strategy the more mainstream it becomes the more people understand this is a way to create a stronger Better Business the more we're going to be able to influence more of those current owners and investors and reach more diverse workforces over time thank you so much I appreciate your clarity about the importance of broad-based quality of these plans which is not kind of the pervasive model um in the equity conver Equity compensation conversation just to be clear about the importance of broad-based equity um is is is very important um Bob patrelli just a quick introduction and share your initial thoughts about um these issues of disparity well we were asked toh introduce ourselves and I guess I'd start by saying I'm on my third career I uh I had 11 years right out of Law School in the federal government I was on I was a senate staff councel I was in policymaking positions in in the Nixon and Ford Administration and then I went back home to Hartford Connecticut and went into business and spent 40 years uh learning business and then ultimately starting three companies from scratch all were National companies one became a New York Stock Exchange company was very successful all three were PE funded and in the last two uh we gave Equity to every employee in the company so I'm I'm a practitioner I believe in it in my third career um I am involved uh with a particular private Equity company but I'm trying to bring the threads of my background together into some policy advocacy and if there's one thing I would say to this group is uh it needs to have a legislative strategy if you want to do something big you need legislation and I hope to be able to describe to you today uh the plan that uh was first introduced in 2021 and now in a revised form will be introduced shortly um it deals with the wealth Gap and I was so pleased to hear anaisa refer to that I'm not not here to tout employee ownership as an end in itself I'm here to tout it as a means the best means of dealing with wealth redistribution and I'll talk about that when I have a chance absolutely we look forward to that thank you Bob Barb you you mentioned um your data findings so I'd like to just circle back to you and ask you to kind of share share what you found sure I would love to do that all right so we are we this is a survey that we conduct with deoe uh and it is a survey of all publicly held companies we've been conducting this survey for I since like 1993 uh and what I'm going to share are the results from our most recent survey which was done in 2021 it's a this the this particular survey is done on a three-year cycle so uh we're actually in the process of updating this data right now if there are any companies that Grant Equity compensation in the room talk to me I'd love to get you into the survey uh and uh but let me uh and so uh so we had about in in 2021 we had just under 400 respondents to the survey they're all publicly held companies they represent all Industries all sizes of public company all they're all almost all us-based companies but all regions within the US and uh 35% were in the high-tech biotech or Life Sciences space uh the rest were in other Industries non-tech Industries uh and uh and the survey looks at the types of equity Wards companies offer and who they offer those Equity Awards to at their companies and then we also look at the specific terms and conditions which is um not something we're particularly interested in today uh I'm going to focus just on the types of equity Awards companies offer and who they offer them to and in the survey we Divine we Define three main types of equity there's what we call appreciation only Vehicles which are mainly stock options and if you at all follow equity in the news you've probably heard that phrase stock options a stock option is the right to buy stock uh at a set price uh over a set period of time uh and hopefully usually the price is equal to the value of the stock when the option is granted hopefully the stock grows in value and then eventually the employees is able to buy the stock and sell it and make a bunch of money uh and before 2004 stock options were the primary way the companies delivered Equity to their employees uh now what we see uh the the other type of equity that we see are full value Awards full value awards are different than stock options in the sense that the employee doesn't have to buy the stock with a full value option with a full value award the employee just gets the stock for free it's a nice deal uh and then the third type of equity that we see is an employee stock purchase plan the first two stock options and full value awards are what I call a discretionary Equity vehicle which means that the company decides who they're going to Grant those vehicles to and how large of a grant the employees are going to get uh with an employee stock purchase plan that is a broad-based vehicle if the company wants to offer an ESP it will typically be a tax qualified plan uh and to be tax qualified they have to offer the ESP to substantially all of their employees the employees have to sign up to participate they usually have to contribute through the P to the plan through payroll uh and then their payroll contributions are used to buy stock usually at a discount sometimes at a very substantial discount uh and uh so so those are really the three types of equity that we look look at in the uh in the program or in the survey so what we see over all uh uh just looking at companies that offer any type of equity any of those three types maybe maybe all three maybe just one but any of those three types what we see is that uh for the public companies in the survey 93% are offering some type of equity to their middle managers 73% are offering some type of equity to their junior managers and 58% are offering some type of equity to their General Workforce which we would call which we which we categorize as non-exempt employees uh in terms of the for Middle managers and Junior managers the equity that's offered is often in the form of full value Awards typically restricted stock units for the general Workforce uh the equity that's offered is often in the form of an employee. purchase plan uh uh at the general Workforce level only 25% of respondents to the survey are offering discretionary Equity Vehicles so either stock options or full value Awards uh so for the enal Workforce the way that that those employees are most likely to receive Equity is through an employee stock purchase plan and that doesn't you know that those statistics those don't sound too bad like 50 you know 58% of companies are offering Equity to their General Workforce but now what I want to do is take a step back about 20 years to the year 2000 and look at the survey data that we had back then so in the year 2000 first of all 100% of the respondents to the survey granted stock options nobody only 20% were granting RS were granting full value Awards it was usually in the form of restricted stock because RSU actually weren't even a thing in 2000 uh so the majority of companies were granting stock options 44% of respondents to the survey said that they granted stock options to all of their us employees if I look at the high-tech sector in uh in 27 4% of high-tech companies were granting stock options to all all of their us employees if I look at the current data uh um only 43% of high-tech companies are granting Equity at the general Workforce level and you'll notice that there's a difference in my terminology so for in 2000 I said they were granting to they said they were granting to all of their employees uh in the current survey we we've changed sort of how we ask the question so uh what what it means in the current survey is they're granting to some of their General Workforce but possibly not all of their employees so we've seen so fewer companies are granting at the general Workforce level than in 2000 and they may not be granting to all of them uh also if we look at esps um currently uh about half of companies have an ESP just under half it's 49% uh back in 2000 uh 62% of companies were offering an ESP so we've seen a pretty significant shift and you might think that that shift happened pretty gradually but it didn't it happened actually really quickly around 2005 anybody here know why that shift happened no one no accoun an accounting standard in 2005 actually it's the end of 2004 right before Christmas because that's when fby issues major accounting standards that might sort of interfere with someone's time with their family over the holidays uh that fby issued a new accounting standard for stock compensation prior to that accounting standard coming out stock options were free companies could Grant stock options and they did not recognize an expense in their income statement for the options they were completely free uh not only that they were non-cash they're still non-cash uh and the company got a tax deduction so that's kind of the trifecta of compensation no hit to the p&l we get a tax deduction and on top of that we're not paying out cash to our employees that is a great deal you can't beat that deal uh and in 2004 fby said you know what we don't think we're accounting for stock compensation correctly uh we think that there should actually be an expense there is a cost to the company for these Equity Awards and they need to we we really need that cost to be reflected in the p&l thank you thank you it's really and we're going to circle back and talk more about rule changes and policy suggestion sorry thank you so much that was that was wonderful um and I have a one clarification question I'm going to ask you too later um Analisa let's jump jump to you and kind of the private Equity space thinking about challenges what are some of the challenges or barriers to expanding broad-based Equity compensation kind of through private Equity Vehicles sure I think a lot of the challenges will be familiar to a lot of the folks in the room that are trying to work with any current owner on employee ownership and so there's a lack of General awareness um around the model and and then when people are aware the model there's a perception that it's just going to be too complex and too hard to do so like the structuring of the plan um is going to create um tax and accounting and legal and administrative burdens that are too um too much of a lift for the company um and then there's a perception that maybe employees won't understand the program and so they won't value the program and so when we initially start talking to private Equity investors and and portfolio company management teams as well and public leaders and family-owned businesses there's really a common set of um reservations that we've encountered and and and those are um what we've come across and so what we've tried to do is create on the structuring of the plan an approach that minimizes the administrative complexity so that investors and companies are we can get them to yes quickly um and so that's that's helped um a great deal um on the piece about will employ employees understand the program and will they value the program we put a tremendous amount of time and effort into um what a lot of folks in the room will be familiar with is is talking to companies about how do you build a culture of ownership where employees feel think and act like owners and to do that you have to take time to explain to employees what what is this ownership program what is this instrument that you've received um how do companies increase in value over time what are the what are the levers that impact that how do you define that so it takes work it takes time and effort um fortunately the field has research there's uh case studies um there's case studies that are our founder and um some of the partners that we work with have and so when we can tell a firm or um a management team we can reduce the administrative complexity we can help you explain the program to employees we can help you with building a culture of ownership they start to get over some of those initial sort of like this is going to be way too hard and it's not going to work and they open up a little bit and they say let's give this a shot you Anthony um thinking about challenges Carta tracks equity for a lot of different Tech and non-tech companies share a little bit about what you see are some of the barriers to companies adopting Equity plans and kind of pushing those Equity plans down to the lower echelons in terms of wage earners Etc yeah and I think I'll probably focus in on some of the things that have already been said and and least you said uh focusing on The Gatekeepers and really thinking through Beyond Mission driven Enterprises and we think about it in similar context and we try and talk about it this isn't about virtue it's about value and this is how businesses outperform this is how you attract and retain the best talent how you align the workforce not only on short-term but long-term goals and ultimately how you win in the marketplace and this goes to that awareness point in many cases this is not a structure that traditional companies were thinking through when they were incorporating and building and so one how do you make them aware that this isn't just about virtue but this actually delivers to their bottom line and doing so in a way that you know as was just mentioned releases some of those friction points and so we create blueprints around different structures we've created different opportunities where in an LLC model for instance you might not be able to convert to a pure uh stock Grant so much as a profit interest unit or a phantom Equity how do you make that real for everybody how do you make it easy to track for the performance of the firm and its investors but increasingly for those employees to make sure that they understand what value they're getting out of it and I think that the other Factor we've got to really start thinking through is how do we talk about making ownership meaningful and it works perfectly for Barb in your story and in many cases for a lot of the Venture back tech companies where growth might be very substantial and at some point the company gets bought or IPOs and there's an opportunity to look liquidate those shares in some cases the private Equity model might not be analogous but as similar in so far as you might expect a more rapid growth and an opportunity for transaction to allow that you know Equity to then be turned into realizable cash in many cases we're not just looking to do this through Venture channels or peack channels but just through traditional businesses and how do we help them understand the importance of the conversion and then provide that value and do so in a way that's really helping them understand what liquidity might look like what value grow might look like and how they communicate that to their Workforce so that everybody's aligned as to how to contribute and what that timeline might look like and so those are the things that candal we're still trying to tackle and do so in predictable repeatable ways to make Equity not just something that sits on paper but meaningful for your life in predictability around when that can happen can I ask something to that um you as we start to work with familyowned businesses and public companies we're bumping up against the same thing is how do you create liquidity for employees along the way especially the employees who are most in need um and so the private Equity context you know you have this four to sevene hold period there's this sort of you know payout that's expected but where you don't have that how do you recreate that so we're actually starting to work with a lold um with a holding company that acquires operating companies and we're thinking how can we manufacture liquidity events every 5 years so that um and have the opportunity for employees to either sort of receive cash or reinvest and so they have an option to build up towards retirement or meet their short-term needs so I think there's a lot of room to experiment but it's definitely challenging for that um Bob turning to you now thinking about challenges before we get to your actual proposal could you speak first about kind of within the existing system what are some of the barriers policy barriers to expanding workers access to equity through their employers well well you know I'm not I'm not really in that business okay I'm uh I'm here to tell you about a plan and I think it behooves all of us to try to think about what is the problem we're trying to solve why are we sitting around talking about this or that kind of equity mechanism the problem I think we should focus on and Analisa referred to it is the tremendous wealth Gap in this country which is undermining what I believe are the tenants of American capitalism and uh the data is compelling most people know there's a wealth Gap but they they don't really know the magnitude of it the top 10% of households by wealth owns 88% of all the stock the bottom 50% owns less than 1% uh American workers wouldn't know a share of stock if they fell over it and if you're really going to change uh the wealth distribution in this country in some off-budget kind of a way because we're not going to be able to get there by new Grant programs that transfer wealth you've got to do it through stock and that's what I'd like to talk about that's what we should be I think thinking about as well as the other thanks on this panel Bob thank you and we're going to circle back to you in just a second and give you an opportunity to share your legislative fix um first I just want to return to anaisa for a minute and give you an opportunity to share a little bit more about ownership Works which many know has taken a particular approach to incorporating broad-based Equity into your private Equity strategy what do you want to share a little bit just kind of like about what your what your philosophy and strategy really is there yeah sure so um as I maybe I'll give you a little bit of context for how I came to this work so I started my career in employee ownership at project Equity um and very much focused on business succession as an opportunity to insert employee ownership into business structures and thinking about businesses changing hands and knowing that private Equity is buying and selling businesses all day every day it felt like an important place to have a conversation around um access to equity participation particularly because private Equity investors commonly share Equity participation with Senior Management um but very uncommonly share with the rest of the the workforce and so um our founder is a a co-head of global private Equity KKR had been doing this in kkr's portfolio and the Industrials portfolio for about a decade including all employees in the equity participation plan and having really tremendous impacts on the personal financial Wellness of employees at those companies but also the performance of the company as well decided to launch this nonprofit um to try to help other investors replicate these outcomes to create momentum for more workers to get access to this opportunity the we as a nonprofit We we work with investors and companies we help them size and structure the plan we help them um build a culture of ownership which is the most complex part of the work um a lot of our efforts there involve convening companies who have put these programs in place so they can learn from and Inspire each other it's one thing for us to say have owners meetings do training share financial share updates on the value um you know delegate decision making do Employee Engagement like we can tell them all these things tactically to do to build an ownership culture it resonates an entirely different way when they hear a CEO talk about his or her journey to building an ownership culture the steps that they took and the outcomes that they've achieved so improve improvements in Employee Engagement improvements employee turnover improvements and safety and all of which can impact the bottom line of the company that resonates in a totally different way so we spend a lot of our energy bringing together um Executives so they can learn from each other on this ownership culture journey and then finally we support um companies with implementing Financial Wellness programs beyond the equity participation program so this could be something you know five years down the line in the private Equity context it could be much further down the line in the context of a family-owned business so what about the short-term financial needs of employees and how can a company um address those so that's that's how we work and um the focus on private Equity right now it's it's a really efficient scale lever there's 90 companies that have implemented programs already reaching 110,000 employees and we're starting to hear from really large family-owned businesses of tens of thousands employees and public companies so this idea of getting the Flywheel spinning a little bit I think is starting to work and creating a Runway to expand Beyond private Equity more broadly thank you so much for that um Barbara and Anthony curious about examples you have of some of the more kind of inclusive broad-based models or companies you could point to or examples you could point to um that do a good job of extending Equity to a large percentage of the workforce including in the public publicly traded stock market companies so Barb maybe you first uh sure I have I have three companies that I that I would like to highlight uh so the first company that I want to highlight is T-Mobile T-Mobile shares both discretionary Equity Awards in the form of rsus and they have an employee stock purchase plan uh and they so the Employee Stock purchase plan is obviously open to all T-Mobile employees but they also Grant rsus to all of their employees and the reason why I want to highlight T-Mobile is because they have done a really great job at being thoughtful about how they educate employees about what RSU are and frequently an obstacle or a concern that I hear to granting broad-based Equity is that lower ranking employees can't understand it they don't value it they won't understand it I just you know in preparation for this I reached out to some of our members and I got that same feedback they don't value it but the fact is they can understand it and they can value it T-Mobile does they actually brought in their ad company the same company that does that T-Mobile ads that you see on TV they brought that in to help them figure out how to really grab their employees at attention and educate them about their uh Equity Awards they have a sort of multifaceted program that includes videos even their emails every email they send they are very very thoughtful about how that email is worded down to what subject line is going to get people to open the email uh and the fact is T-Mobile employees do absolutely value those Awards they have a they have an annual Grant day every year it's a big deal it's a celebration in the weeks leading up they're like Grant dates coming people are like really anticipating their grants on Grant date everybody like wants to see how many shares did they get and uh T-mobile employees are required to accept those rsus they have something like an 80% acceptance rate within two weeks uh that's a phenomenal rate that any public company even ones who aren't granting down to their lower ranking employees would love to have in terms of their rsus so that's one example another example I want to highlight is uh sap sap offers uh an employee stock purchase plan uh and they've done some really Innovative things and one obstacle that think to companies offering Equity broadly is that as I said before one of the ways that companies most often offer Equity to their General Workforce is through an employee stock purchase plan the tax code that governs esps was created in 1964 and has really not been updated if you go back and you read the code that was adopted in 1964 which I did just yesterday just to make sure uh it's pretty much the same as the tax code that we are working with today down to the dollar limit on how much stock employees can acquire that limit has never been adjusted since 1964 for inflation uh and one problem with that tax code is it is very limiting around what companies can do so sip zpp is a non-qualified plan they could not do what they wanted to under the structure of US law so they implemented a plan that is not qualified uh and there and there's two really Innovative things that they were able to do because of that one is they uh they offer a match instead of a discount uh and in terms of getting employees to participate in a plan A match is economically the same thing as a discount but to go out to employees and be able to say hey for every $100 you invest we're going to give you this number of dollars that's it's so much easier to communicate that benefit especially to people who maybe have never owned stock before in their lives than to say hey we're going to let you buy the stock but you're going to buy it at a discount and discount that's kind of like having a coupon you're going to pay L like nobody understands that they don't understand what discount is but if you say we're going to give you you know in Sap's case it's a 40% match we're going to give you $40 for every $100 you put in this plan come on who wouldn't take that deal uh and so uh so that's one thing that they do that they could not do Under the US tax code if they had a qualified plan uh first of all the match is greater than the discount that's allowed but even if they wanted to stick with the standard discount you can't do it in the form of match under the tax code uh the other thing they do that I think is really Innovative is they provide a subsidy to everyone except their executiv so that the EXE the executives don't get the subsidy but all other employees get a 20 year they're a German company so all all other employees get a 20 EUR subsidy which doesn't sound like that much that's like a 20 $20 20 somewhere a little over 20 bucks in the US right now but for some employees in some countries that $20 subsidy is the difference between them being able to buy a single share of stock and them not being able to participate in the plan because they can't contribute enough to buy a share stock because the contributions are based on how much they can contribute through their pay uh so uh sap I think has they really took a took a step back and really thought outside the box when they put that plan in place and really came up with a great benefit but a lot of companies aren't willing to do that what we see the majority of equity of esps that we see in the united states are tax qualified plans uh and you can't you can't provide those sorts of benefits under a tax qualified plan am I out of time or can I do one more one one quickie okay one quickie the other one this is a tax qualified plan it's outset medical outset medical makes a dialysis machine that people can use in their homes uh and they uh so they're they're in the they're in the biotech space but they do have a lot of Frontline workers who are just installing these machines in people's homes uh they took a different approach they wanted an ESP that would be really inclusive uh but they wanted one to be tax qualified so they stuck within the guidelines of what you're allowed to do in the US but the most Innovative so it's a very generous ESP I'll state that it's the most generous that you can offer in the US and still be tax qualified but um but they also have a very Innovative financing method where employees instead of having to contribute through payroll are able to finance their purchases by selling some of the shares that they're purchasing uh and that really eliminates a huge obstacle to participating in the ESP which is that employees have to contribute through payroll deductions uh outset medical has achieved an over 90% participation rate on their ESP and remember I think I said earlier maybe not median participation rates for esps right now is around 38% so a 90% participation rate is phenomenal uh it really speaks to the kind of benefit uh what that what what that kind of benefit can do in terms of getting Equity to employees thank you Barb uh I'll be quick I do want to seize on one thing you just mentioned which I agree with the concept that the Frontline employees won't appreciate understand or value this I fundamentally disagree with that and I would say and ownership Works has done a fantastic job of this is really illustrating like what this can mean for your average employee and I think at a headline level and with all due respect to I think you said T-Mobile like I don't think your small business needs to figure out the perfect way to craft an email and I'm not disparaging I just mean like that's a huge resource but you can communicate the headline value to a lot of folks I think then the nuance and then meeting them where they are can be complicated and cidy card has spent a huge amount of time just on the Venture back space of explaining what Equity options and how to Value them look like what tax looks like how to think about this for your own scenario and that's where there's a lot of Nuance but I think companies that are committed to this can build the structures in the right way and they do need to be absolutely thoughtful about it and there are so many structures so really explaining what are you're indexing for how do you think about this then how do we put the right structure in place and then being able to meet employees wherever they are in the stack where they are to help explain what this is going to mean for them on a nuanced and operational perspective that is challenging I don't dispute it but I think that the friction point of my Frontline workers won't appreciate or understand this I think is a copout that we shouldn't accept and I bring this up and I know you're asking for specific companies I don't want to necessar dwell into specific companies but this is the tide that has allowed us to really understand ownership EMP I'm sorry broad-based employee ownership works for businesses and segments that I wouldn't have thought it would work for there are opportunities of course in Tech and growth but we're seeing this being adopted by increasingly Financial and Professional Services firms which sounds like an obvious next concentric Circle but increasingly we're also being are seeing Hospitality groups adopt these types of metrics where again if you had asked me a year ago what I thought that that would be a rich field for this I just said maybe in time but not right away but I think when you can connect what this means for the workforce not only does it get at the wealth Gap but it gets at the performance opportunity for the business and gets to buy in from those Gatekeepers hopeful thank you so much so in preparation for Bob here um and Bob let me just say you've named the wealth Gap a couple times and I you know I think that issue that you've pinpointed so precisely really is a motivator for for many of us up on the stage and many of us in this room and certainly for The ruers Institute kind of a principal driver um for our commitment to advance understanding and conduct research on these questions um so I I do just want to share that at the ruers Institute we are planning in the coming year to launch kind of a major new focus on and policy analysis of of how to expand broad-based Equity compensation so in a way this is kind of like a little bit of a kickoff or the first kind of step for us and we'll be having an academic conference in in California in partnership with Carta um and many other groups um and continuing continuing that work um this year collecting a number of different ideas and and analyzing them um and Bob I understand that you have like have carefully crafted a legislative proposal and Bob asked me if he could have an extra couple of minutes so I I'm going to allow him up to 5 minutes um to share this because we want to be sure to have time for Q&A and we wrap up at 2:15 so I'm going to invite you now to share your your vision for sort of a legislative fix um on this thank you very much thank you and don't hesitate to give me the elbow okay I won't so what what I'm about to talk about I'm sorry what I'm about to am I on what I'm about to talk about is is in no way undercutting what you've heard from my three colleagues they're operating within the constraints of current law and trying to figure out the best ways to advance employee ownership within those constraints maybe because I'm older I'm impatient and uh uh I'm looking for with your help uh a really aggressive opportunity to change the game and you know again nothing negative about what everybody's trying to do to operate within current law but it's not changing the game 50% of households still only own less than 1% of stock despite all of the Miracles that my colleagues have done so what's the plan it's pretty simple this piece of legislation which will be shortly reintroduced I hope with bipartisan sponsorship will permit all publicly traded companies in the US and private companies with 500 and more employees to voluntarily elect to receive a three percentage Point reduction in their corporate income tax rate so under current law from 21% to 18% provided they put in place what's called a share plan and a share plan very simply means that they have to Grant free grant 5% of their stock their current float their market value 5% of their stock to the lowest 80% compensated of their employees over not more than five years very simple you want a tax reduction share your stock now um we've done a number of models economically on on this it looks like that the threo uh federal tax reduction which uh is about 65 billion a year would subsidize 50 to 70% of the cost to the company shareholders uh of these grants now recognize that when you when you grant stock you're diluting current shareholders you're not hurting the company you're diluting the current shareholders well the current shareholders by definition are rich 1% of people owns over 50% of all stock so through the private sector you can engineer what amounts to a kind of Robin Hood plan um at the lowest possible cost that I can think of to to the federal government so for 66 5 billion over 10 years you can affect a $2.5 trillion doll wealth transfer to 60 million people uh which is uh about half of the private sector Workforce you know if I were able to pull all the strings Analisa what I would also say was all of those private Equity companies like the one I'm involved with and the ones you're working with who are taking over the world they're now 11,000 in private Equity funded companies I would say guess what PE firms you want to keep your carried interest deduction you got to have a share plan use the law to achieve an expansion of uh transf employee ownership and transfer of wealth I don't like to talk about employee ownership per se because it's fine if people sell the stock after it's vested and I should have said as an element a 5-year investing period in the share PL so it's not ongoing ownership it's wealth creation so that's the plan I need your help very not just an advocacy but in fine-tuning already from Barb I've I've learned some things that I darn will better address in this bill so I genuinely need help I'm a kind of a oneman band here which is ridiculous uh so that's the idea and I hope you like it Bob thank you wonderful well friends I think we should turn it over to audience Q&A we've heard some really profound Reflections from everyone Bob put a big Visionary legislative proposal on the table would love to invite some questions um from the audience directed to the whole group or directed to one individual yes in the back you yeah yeah um a question for you one of the I appreciate your commentary on the way private Equity Works which is like year investment than they usually flip so what do you how do you guys think about uh maintaining the employee ownership piece in the flip yeah that's such an important piece so there's typically three ways that a private Equity Firm will exit they'll sell to another private Equity Firm the company might go um public or it could be sold to um an existing company and and and be part of a strategic acquisition um so we've seen examples of a company private Equity Firm that's a partner of ownership Works selling a company to another private Equity Firm and negotiating as part of that sale a commitment to relaunch the program so one of the exits this Summer that happened and the new investor is relaunching the program um which is very exciting and that's the kind of thing we're hoping to encourage among the firms that work with ownership works and Beyond um we also have examples of companies that have gone public and um continue or launch a program in conjunction with an IPO so we think that's a really viable strategy most of the 90 companies that well all of the 90 companies that we working with are very early in the journey so there aren't many um exits as yet but so we're hoping to be able to encourage that if it's a strategic acquisition it's really hard if that company doesn't have broad-based ownership questions see Daniel Daniel please um this question might be for you Analisa but maybe the others as well so um last month I was uh at a private Equity uh for down in Orlando with Regina also and I was really disheartened because I I had to completely flip what I was thinking KKR Black Rock Goldman we all greatly in sport of ownership um or wealth going to owners is the pension funds who couldn't have cared less and they were saying we just care about return to our shareholders and so here are these Pension funds that are looking out for the the pensions the wealth of people and they couldn't have cared less I was like what is going on can can you just share what what's your education Outreach to get obviously the employees get it as you've been saying but the people that are buying you you know your your clients they're not getting that um so that's really interesting um we have a limited partner Leadership Council and there are a handful of Pension funds that are on it so Washington State investment board um cpers New York Common New York City comp Controllers Office state of Michigan they're very supportive they see this as a win-win not in any way dilutive but there are Pension funds that have had a strong reaction um you know uh we make the case that these programs pay for themselves that they improve the performance of the company it's not dilutive and we have case studies studies that indicate that but Pension funds are operating in a highly politicized environment right now um you know there are some that see this as an ESG initiative and they're in states where that is not where the legislature is not supportive and that impacts how their willingness to engage around this um so that's what I've observed I would just add I mean similar like none of these segments are monolith and that's why it's so important that we make the case of value versus virtue because most Pension funds no matter if they're in like a politicized environment or not have an obligation to their individual contributors whether it's firefighters teachers whatever it is they take that fiary responsibility very seriously and so whether you think about this for the ESG lens or not and we tend not to I think in all cases you've got to be able to make the case that this is going to improve those returns to get that Capital supportive of this and I you know to to Bob's Point like I would love to see policy changes but to me we might be able to do some nudges around it and who knows that broad-based approach might work but like in reality it's setting industry forward and bringing the capital providers and these Gatekeepers on board and that's through virtue value not necessarily virtue and even for publicly held companies any publicly held company that wants to offer Equity to its employees that plan has to be approved by shareholders and the Pension funds and the other institutional investors are often an obstacle to getting these plans approved by shareholders now most institutional investors will approve an ESP because they see it as broad-based and there's a cap on how many shares they'll approve but there're but it's a pretty generous cap it's usually 10% of the company's common stock outstanding so uh so esps you can usually get pass but but the the awards where the programs where where companies might want to offer discretionary Equity Awards those uh a company is not going to go to shareholders for the most part without a plan that they are sure is going to pass so that means they have they are building into their design the restrictions that shareholders are imposing on those plans and that absolutely affects their ability to offer Equity to their General Workforce because then they can't get enough shares sometimes to do it not all companies some private you know for some public companies they don't have a large institutional investment base and it's not an issue but where but where there are pension plans and other institutional investors it's a concern well maybe we need some legislation Barb that says that certain plans don't have to go to shareholders for approval I have a clarification question for Barbara about one of your statistics I think you said 58% of publicly traded companies in the survey offered stock to the full Workforce or to alte does that 58% include like uh esps whether or not the individual employee Ops in so I know there's about 30% of employees who have access to an es will actually sign up so that 58% yes so yes the 58% they're offering some form of their employees most of the time it's in the form of an ESP which means that a lot of their employees may not be taking advantage of the equity that they are being offered because an ESP requires the employee to actively sign up to participate thank you and because you there there are Innovations like what sap has done to uh to encourage employees to sign up but some of those Innovations you can't do Under the tax code with a qualified plan so so yeah I I do think I think esps are great don't get me I love an ESP I benefited from participating in ESP but in terms of a ve of an equity vehicle delivery Equity delivery vehicle for the broad base of employees it is a little bit problematic because you you have to get employees to sign up versus other types of equity Awards or even what Bob's proposed which uh would be um employees would get it they wouldn't have to sign up and pay you know find a way to pay for it yeah yeah no thank you so I think when we sort of crack open this nut of kind of the equity comp conversation um I think we while often people think about Equity compensation just as executive compensation because it's so common for a company to choose to extend stock compensation just to the senior management or just to the software Engineers Etc um but as we could hear from all of these stories it there's more flexibility with within the system individual companies can choose to make their Equity comp plans much more inclusive than they often are um Capt companies can kind of promote and facilitate that sort of more broad-based model ownership works is innovating in such really important ways um and it may in the end be the case that we require a policy fix um so this has been a wonderful kind of first crack of this this whole um topic and I really thank the panel thank the questions uh audience for your questions and I think um we'll next have a a break Matt do you have a some instructions some marching orders thank you