For workers who don’t make enough money to participate in their organization’s employee stock purchase plan, employers may want to consider an alternative—a Cashless Participation Employee Stock Purchase Plan, says Aaron Shapiro, founder and CEO of Carver Edison, based in New York City.
What exactly is a Cashless Participation ESPP and how does it work to make such plans financially accessible to all eligible employees?
Prior to the invention of Cashless Participation, employees could only participate in their ESPPs if they had expendable income, meaning these plans were inadvertently favoring highly compensated employees. Cashless Participation levels the playing field by making discounted stock ownership accessible regardless of personal financial limitations.
Employees opt into Cashless Participation when enrolling in their ESPP. Once they do, they get access to the Cashless Participation Boost which bridges the gap between what they can afford to contribute, and the maximum allowed by their Plan. The Cashless Participation Boost is automatically applied on behalf of the participating employee on the purchase date.
On average, employees using Cashless Participation can own anywhere from 50 percent to 150 percent more company stock than they otherwise would without it. The program is sustainably funded through capital markets activities managed by Carver Edison. Companies providing Cashless Participation benefit from increased plan participation, which works to bolster talent retention and attraction goals—while also driving more adjusted paid-in capital through increased participation.
What made you think about developing this kind of ESPP?
After graduating from Babson College in Massachusetts, I moved to Connecticut, where I helped build a nonprofit-focused institutional investment firm as its first employee. During my tenure, the firm’s assets under management grew from $150 million to $4 billion.
While in Connecticut, a family member asked me to help them find a way to save more money. I began to realize that most ESPPs allow employees to make thousands of dollars a year virtually risk-free. Yet, most employees don’t participate in their plan because they can’t afford to have more money deducted from their paycheck. The idea for Carver Edison was born and I soon ventured back to my hometown, New York City, to begin building a company that helps ordinary employees make more money.
How are ESPPs valuable in attracting and retaining talent amid the Great Resignation?
Amid the Great Resignation and record-setting inflation where wages are not keeping up with rising costs, ESPPs are the easiest way for an employer to financially empower their workforce for the long haul. Through an ESPP, employers offer employees the ability to purchase company stock at a discount that is not available to the public. With access to an ESPP, employees can increase their overall compensation through company stock ownership, which motivates them to bring their best selves to work every day and empowers them to feel like they have skin in the game as shareholders of their company.
Cashless Participation is rooted in the belief that thoughtfully designed financial products can help companies provide more wealth-building opportunities amid a time when people are not making enough money.
How does an ESPP mutually benefit the employee and employers?
Implementing an ESPP directly aligns a workforce with the success of the company. ESPPs give employees upward financial mobility through equity ownership which is also accretive to the company.
While employees benefit from upward financial mobility, companies benefit from increased adjusted paid-in capital. Likewise, companies that offer a cashless ESPP may benefit from less expensive ESPP shares and a tax asset spurred by the mechanics of the program.
Unlike restricted stock units that can cause a tremendous tax burden for those they’re intended to help the most—and which are usually tied to compensation level, not to mention restricted for a period of time, ESPPs provide direct and immediate company alignment.
Why is a paycheck no longer enough for employees to feel like they’re getting ahead?
Whether it’s the 25-year-old trying to pay down student loan debt or the single mother working two jobs to keep food on the table, people simply are not making enough money in today’s economy. While a cash compensation raise provides a temporary cushion, companies cannot keep pace with the rate of inflation. Stock ownership is key to securing a healthy financial future as it generates wealth over the long term.
However, today’s distribution of equity ownership is a huge driver of economic inequality and exclusion. It’s no coincidence that the wealthiest households in America own significantly more stock than others. Despite the recent market volatility, equity markets have returned over 500 percent on an inflation-adjusted basis since 1970 compared to nearly 0 percent for salaries. Stockholders have done well, paychecks have not.
Paychecks alone are no longer enough to secure an employee’s retirement or retain a company’s top talent. Offering a benefit such as a cashless ESPP not only helps to set folks up for a healthy financial future, but it also provides unprecedented protection from market volatility—stronger than that conferred through a traditional ESPP and a consideration that is of the utmost importance within the kangaroo market we’ve been experiencing for the last two years.
How can employers create a more financially inclusive workforce?
The most impactful way publicly traded companies can bridge the economic inequality gap is by helping more of their employees take part in stock ownership by offering benefits like ESPPs, especially a cashless ESPP. Beyond offering stock ownership options, they also need to actively educate their employees about these benefits, including how to access them and why it’s important to do so.