Washington, D.C. — The federal government has been a major funder of research to advance innovation and technical understanding for approximately 80 years. The tech industry is heavily supported by Washington: In Fiscal Year 2016, total federal funding for research and development programs was $140.5 billion, with nearly three-quarters of this funding going to private industry, universities, and federally funded research and development centers operated by private contractors. In a report released today, the Center for American Progress—which has long recommended policies to expand employee ownership and broad-based profit-sharing throughout the U.S. economy—proposes that that whenever the federal government provides at least $1 million in government assistance to tech startups, recipients should be required to share equity, profits, or ownership with all their workers when they go public or sell to another company.
“At the same time Silicon Valley became a hub for new technology, companies fueling the region’s growth pioneered the use of stock options to attract and motivate workers. Despite evidence showing that broad-based equity ownership benefits workers, companies and investors, tech companies are increasingly abandoning the practice. As a major funder of domestic research and development, the federal government has an opportunity to leverage its investments to ensure that workers are rewarded for the profits they help create,” said Karla Walter, director of employment policy at CAP.
CAP’s report explores access to equity compensation and capital shares in the tech sector. While the government supports these companies to bring technology to market that will advance public well-being; provide critical products to the government; and spur the growth of future job creators, too often, most employees receive little benefit, while CEOs and top talent frequently receive a windfall at the sale of the company. CAP’s proposal to encourage employee ownership and profit sharing in the tech sector includes the following provisions:
- Ensuring the plans are sufficiently broad-based. The government can require all employees, temporary workers and independent contractors working at least 20 hours per week to be eligible for this benefit. Companies should be required to demonstrate that the value expended on the top 5 percent of employees is equal to the amount spent on the bottom 80 percent of workers.
- Options for different forms of profit-sharing. Recipients could comply with this requirement by setting up broad-based incentive programs with an ongoing awards system through grants of restricted stock unions, stock options, or an employee stock ownership plan. Alternatively, they could fulfill these requirements at the point of going public or a private sale, with the award of unrestricted stock with full voting rights or cash profit-sharing.
- Measuring government assistance. Government assistance can include grants, loans, loan guarantees, access to government-developed technology, and even tax incentives. Federal support would be measured cumulatively—so a company receiving $1 million in assistance from multiple programs or at different phases of development would be required to meet these profit-sharing requirements. The threshold will coincide with typical levels of support for many government programs; for example, Small Business Innovation Research Program and Small Business Technology Transfer Phase II recipients typically receive grants approaching $1 million.
Click here to read “Advancing Ownership in Cutting-Edge Industries: How the Federal Government Can Ensure that the Tech Sector Shares Profits With Workers” by Karla Walter.
For more information or to speak with an expert, contact Allison Preiss at gro.ssergorpnacirema@ssierpa or 202.478.6331.