Is there a database of companies with ESOPs and/or EOTs? One challenge is that 7x cap and only applying the % allocation by salary up to $350,000 of salary. Why would the main founders of a company do that when they feel like their risk reward for starting a company is significant ownership (whatever isn’t diluted by taking outside capital)?
We need a 1% pledge but toward more employee ownership as well, maybe there are movements here but I’d be curious to know as well. Orgs like Team Shares ostensibly are trying to buy companies then build a plan toward employee ownership but I that’s anecdotal and I don’t have a good sense for how widespread this is or how we might really incentivize and build a movement around this (or if anyone else already is). Main Street Summit would be an interesting community to survey around this.
As to the equity cap, how much more equity should the highest-paid employee receive than the lowest-paid employee? I'm not sure that the ESOP's version is the best one, but it seems to me that, outside of founders, there should be some rule of thumb to make the distance between highest and lowest paid equity plans more equitable than they are today?
America's system of Venture Capital that is a network of Mafia-like entities ensures that wealth inequality will continue to rise sharply driven by Gen AI hype. The incentives in Capitalism and which AI startups get the most funding determines the technological outcomes. Today the semiconductor chip industry is mostly centered around Taiwan, South Korea, Japan and their complex supply-chain where TSMC, ASML and Nvidia are like a golden triad. Only one of those is American, in fact both Nvidia and AMD have Taiwanese-American CEOs.
Now with America's increasingly authoritarian ownership of AI supremacy, including illegal reciprocal tariffs - the idea of Silicon Valley changing its ways is highly unlikely. Increasingly, just getting full access to the best AI tools include paid subscriptions of up to $250 a month like Google's new Ultra plan.
The United States is therefore likely to keep the world in a purgatory of technological dependency out of self-interest and more powerful like monopoly capitalism led by Tycoons. Many onlooks do not believe that the current system reflects democratic values of old or even actual rule of law.
Well, Substack's verification scheme is a pain, at least when my email is not receiving the applicable authentication code immediately, as happens with phone text messages.
I am always intrigued by those comments that claim X% of the population own Y% of the wealth, But they never provide a set of X's and Y's that they think are legitimate or acceptable.
So let's visit the hunter gather society, where the chief of the clan of 100 people "owns" 2% of the wealth of stone axes, arrows and bows, bone and wood tools, reed baskets, etc. That is about all he and his family can carry around with them anyway. But the other 99% of the population own 98% of the wealth. There just doesn't happen to be all that much of it. If you are not aware of it already, you should spend some time with Michael Magoon's Substack on poverty, prosperity and progress: https://frompovertytoprogress.com . He provides some background on what it takes to create progress as a prosperous low poverty society.
One aspect this particular essay did not discuss was the command that talent can extract as a new employee [one with a well demonstrated prior performance, anyway]. "I'll come to work for your firm if you give me Z% in stock at the rate of A shares per month, as I help grow your firm." I do agree that the smarter firms might do even better economically if they provided such wealth sharing ownership opportunities. And in really well run firms every employee, even custodial services, has a contributory role, but gaging that relative value is essentially indicated by wage/salary scales [even if imperfectly].
Just don't ignore the role that personal responsibility and a savings/"look to the future" mindset has played in all of these people's successes.
I do need to reread this essay sometime to better cement the various program options into my mind/ memory.
In the terms of the stock market, there is a set amount of shares on the market, and the richest own most of them (and get much richer for owning most of them). Sure you can add more shares to the market (just like you can make more tools in your hunter-gatherer society), but the rich are more able to buy those shares up too and they do, further entrenching ownership only among the most wealthy. But we can certainly cut into that pie a little bit by giving more ownership to more workers. I'm familiar with Michael's work, but you're welcome to point me to a specific essay if there's one you find particularly relevant to expanding equity ownership?
I agree that stock plans should be more transparent to new employees. I worked at a tech company for five years and vested a certain number of stocks when I did. But I didn't know how many total stocks there were, or how my share compared to anyone else. I also have no idea how much the company is worth. So I would have no way of knowing the value of my stock at sale, if it ever did. As of now, they are still worthless.
I'm all for personal responsibility here too, but some systemic restructuring would help. Especially as I'm not advocating for giving money away free here, I'm advocating for giving workers a share of the value they help create. And a bit larger of a share than they are already getting.
I am sure you know all of this, so I am only poking at you for some of your word choices. :-)
"... cut into that pie a little bit by giving more ownership to more workers."
"...not advocating for giving money away free here, I'm advocating for giving workers a share of the value they help create."
No one is going to "give" someone something if they haven't shown that they earned it; and the best place to show that value and contribution is via the marketplace.
"... vested a certain number of stocks when I did. But I didn't know how many total stocks there were, or how my share compared to anyone else. I also have no idea how much the company is worth. So I would have no way of knowing the value of my stock at sale, if it ever did. As of now, they are still worthless." Well, if they are worthless, then just give them to me, or to a 501-c-3 of your choice. Someone will have the patience to wait for a market reckoning on your contribution, even if you are going to forego that potential.
Part of what you want to achieve will require educating folks in HS about some basic concepts of business, value creation, stock ownership as surrogate for the wealth of the firm, etc. I did not get that and was late to the party [by a couple of years] to access my employer's modest profit sharing plan when they made it available. I think it was their precursor to their 401K offering. But 25 years later it was all good.
Now, you want to restructure remuneration packages, especially for start ups, but for any firm, to include both tax deferred income (IRA & 401K type) and access to the potential for F-U money [as some MS employees expressed it].
In the final analysis, the marketplace will determine this, as demographics may favor workers in the future [or at least the more in demand subset]. I endorse efforts to help people obtain their real value/return for their time and talent, but most of us most of the time are not exceptional and have to plug away with IRA type waiting games to realize some level of financial independence in retirement or sooner. That requires a "save and invest" mindset that is not as common as it could and should be.
Personally I think SS could/should be converted to a mandatory IRA equivalent, along with parallel mandatory programs for saving for educational needs and for healthcare needs down the road. It will have to be mandatory because too few will exercise the wisdom and discipline to do this without being forced into it.
Elle, this a brilliant reframing of how Silicon Valley's most impactful innovation wasn't necessarily the microchip, but rather more about the democratizing of ownership itself. (Sidenote: having had the privilege of learning from you during Write of Passage, I'm not surprised by the depth and clarity you bring to such a complex topic. Your generosity with insights and time during that cohort really showed, and it's evident here in how accessibly you've made these economic concepts. Looking forward to the book and your continued posts.)
Obviously your essay touches on the fundamental tension in capitalism itself: between rewarding capital and rewarding labor. The "Fairchidren" family tree you reference shows how wealth begets wealth in an almost exponential way. But your proposed solutions suggest we might be able to harness that same exponential effect for broader prosperity...
I'm curious to learn more about how you think about the underlying challenges:
- Political Feasibility: Given how entrenched current equity structures are, what would it take to create momentum for more equitable distribution? The Clinton-era salary cap backfired spectacularly—how do we avoid similar unintended consequences?
- The Innovation Question: Silicon Valley's current model, inequitable as it is, has generated tremendous innovation. How do we ensure that more equitable distribution doesn't dampen the entrepreneurial dynamism you describe?
- Implementation: For companies wanting to move toward more equitable equity distribution today, what would you recommend as practical first steps? (I believe you've written a lot on this - I need to dig in)
Thank you for such a kind comment David, I really appreciate it!
Some thoughts on your challenges:
Political feasibility: Luckily, employee equity and employee ownership is a bi-partisan issue in the United States. We can and do pass legislation that improve this all the time. Also, it's worth noting that the Clinton error has also happened in reverse. The 401(k) was originally added as a tax shelter, a way for executives to earn salary without paying taxes on it. It was only later that others realized that loophold could actually benefit all workers, not just the top ones.
It is tricky though, because well meaning politics can have bad results. Robert Reisch was the head of the department of labor during the Clinton error and he said it resulted from a bad compromise. Companies wanted to be able to pay execs a lot of money (to be able to attract the best ones). Clinton wanted to cap executive pay. The compromise that gave them both what they wanted actually gave the companies what they wanted. I don't know how to solve that. But it's worth looking into how we can fix it.
Innovation: The Silicon Valley model resulted in lots of innovation. I see no reason why that same model couldn't continue to do so, even as it motivates and benefits a lot more people. Investors and executives can still get rich, but how much better would it be if a lot more people could get a lot richer too? Small tweaks to the system here could have big rewards.
Implementation: Small companies can set up as EOTs or cooperatives, or just do manual profit sharing with employees. Larger companies can become partial or even full ESOPs. When founders want to reture, they can sell some or all of their company to employees rather than to another company or PE. There's a lot that can be done here.
And I'll have even more call to actions coming soon!
Is there a database of companies with ESOPs and/or EOTs? One challenge is that 7x cap and only applying the % allocation by salary up to $350,000 of salary. Why would the main founders of a company do that when they feel like their risk reward for starting a company is significant ownership (whatever isn’t diluted by taking outside capital)?
We need a 1% pledge but toward more employee ownership as well, maybe there are movements here but I’d be curious to know as well. Orgs like Team Shares ostensibly are trying to buy companies then build a plan toward employee ownership but I that’s anecdotal and I don’t have a good sense for how widespread this is or how we might really incentivize and build a movement around this (or if anyone else already is). Main Street Summit would be an interesting community to survey around this.
There's a rather expensive full database of US ESOPs here: https://www.nceo.org/research/data/national-esop-database
But I have the free version as a spreadsheet and can share it with you. Can you join the Slack channel for the project and then I can send it to you and everyone else privately there? https://join.slack.com/t/elysianpress/shared_invite/zt-2x9c6c0ya-P0FgtZB3VezixDgpOV8NJw
The UK also has a list of their EOTs here: https://www.rm2.co.uk/eo-top-50/employee-ownership-top-50-2023/
As to the equity cap, how much more equity should the highest-paid employee receive than the lowest-paid employee? I'm not sure that the ESOP's version is the best one, but it seems to me that, outside of founders, there should be some rule of thumb to make the distance between highest and lowest paid equity plans more equitable than they are today?
This was well done. I did not realize what a diversity of employee stock ownership types there are.
America's system of Venture Capital that is a network of Mafia-like entities ensures that wealth inequality will continue to rise sharply driven by Gen AI hype. The incentives in Capitalism and which AI startups get the most funding determines the technological outcomes. Today the semiconductor chip industry is mostly centered around Taiwan, South Korea, Japan and their complex supply-chain where TSMC, ASML and Nvidia are like a golden triad. Only one of those is American, in fact both Nvidia and AMD have Taiwanese-American CEOs.
Now with America's increasingly authoritarian ownership of AI supremacy, including illegal reciprocal tariffs - the idea of Silicon Valley changing its ways is highly unlikely. Increasingly, just getting full access to the best AI tools include paid subscriptions of up to $250 a month like Google's new Ultra plan.
The United States is therefore likely to keep the world in a purgatory of technological dependency out of self-interest and more powerful like monopoly capitalism led by Tycoons. Many onlooks do not believe that the current system reflects democratic values of old or even actual rule of law.
Yep, there are a lot of problems with the current model. That doesn't mean we shouldn't work to solve it while we can!
Well, Substack's verification scheme is a pain, at least when my email is not receiving the applicable authentication code immediately, as happens with phone text messages.
I am always intrigued by those comments that claim X% of the population own Y% of the wealth, But they never provide a set of X's and Y's that they think are legitimate or acceptable.
So let's visit the hunter gather society, where the chief of the clan of 100 people "owns" 2% of the wealth of stone axes, arrows and bows, bone and wood tools, reed baskets, etc. That is about all he and his family can carry around with them anyway. But the other 99% of the population own 98% of the wealth. There just doesn't happen to be all that much of it. If you are not aware of it already, you should spend some time with Michael Magoon's Substack on poverty, prosperity and progress: https://frompovertytoprogress.com . He provides some background on what it takes to create progress as a prosperous low poverty society.
One aspect this particular essay did not discuss was the command that talent can extract as a new employee [one with a well demonstrated prior performance, anyway]. "I'll come to work for your firm if you give me Z% in stock at the rate of A shares per month, as I help grow your firm." I do agree that the smarter firms might do even better economically if they provided such wealth sharing ownership opportunities. And in really well run firms every employee, even custodial services, has a contributory role, but gaging that relative value is essentially indicated by wage/salary scales [even if imperfectly].
Just don't ignore the role that personal responsibility and a savings/"look to the future" mindset has played in all of these people's successes.
I do need to reread this essay sometime to better cement the various program options into my mind/ memory.
In the terms of the stock market, there is a set amount of shares on the market, and the richest own most of them (and get much richer for owning most of them). Sure you can add more shares to the market (just like you can make more tools in your hunter-gatherer society), but the rich are more able to buy those shares up too and they do, further entrenching ownership only among the most wealthy. But we can certainly cut into that pie a little bit by giving more ownership to more workers. I'm familiar with Michael's work, but you're welcome to point me to a specific essay if there's one you find particularly relevant to expanding equity ownership?
I agree that stock plans should be more transparent to new employees. I worked at a tech company for five years and vested a certain number of stocks when I did. But I didn't know how many total stocks there were, or how my share compared to anyone else. I also have no idea how much the company is worth. So I would have no way of knowing the value of my stock at sale, if it ever did. As of now, they are still worthless.
I'm all for personal responsibility here too, but some systemic restructuring would help. Especially as I'm not advocating for giving money away free here, I'm advocating for giving workers a share of the value they help create. And a bit larger of a share than they are already getting.
I am sure you know all of this, so I am only poking at you for some of your word choices. :-)
"... cut into that pie a little bit by giving more ownership to more workers."
"...not advocating for giving money away free here, I'm advocating for giving workers a share of the value they help create."
No one is going to "give" someone something if they haven't shown that they earned it; and the best place to show that value and contribution is via the marketplace.
"... vested a certain number of stocks when I did. But I didn't know how many total stocks there were, or how my share compared to anyone else. I also have no idea how much the company is worth. So I would have no way of knowing the value of my stock at sale, if it ever did. As of now, they are still worthless." Well, if they are worthless, then just give them to me, or to a 501-c-3 of your choice. Someone will have the patience to wait for a market reckoning on your contribution, even if you are going to forego that potential.
Part of what you want to achieve will require educating folks in HS about some basic concepts of business, value creation, stock ownership as surrogate for the wealth of the firm, etc. I did not get that and was late to the party [by a couple of years] to access my employer's modest profit sharing plan when they made it available. I think it was their precursor to their 401K offering. But 25 years later it was all good.
Now, you want to restructure remuneration packages, especially for start ups, but for any firm, to include both tax deferred income (IRA & 401K type) and access to the potential for F-U money [as some MS employees expressed it].
In the final analysis, the marketplace will determine this, as demographics may favor workers in the future [or at least the more in demand subset]. I endorse efforts to help people obtain their real value/return for their time and talent, but most of us most of the time are not exceptional and have to plug away with IRA type waiting games to realize some level of financial independence in retirement or sooner. That requires a "save and invest" mindset that is not as common as it could and should be.
Personally I think SS could/should be converted to a mandatory IRA equivalent, along with parallel mandatory programs for saving for educational needs and for healthcare needs down the road. It will have to be mandatory because too few will exercise the wisdom and discipline to do this without being forced into it.
Elle, this a brilliant reframing of how Silicon Valley's most impactful innovation wasn't necessarily the microchip, but rather more about the democratizing of ownership itself. (Sidenote: having had the privilege of learning from you during Write of Passage, I'm not surprised by the depth and clarity you bring to such a complex topic. Your generosity with insights and time during that cohort really showed, and it's evident here in how accessibly you've made these economic concepts. Looking forward to the book and your continued posts.)
Obviously your essay touches on the fundamental tension in capitalism itself: between rewarding capital and rewarding labor. The "Fairchidren" family tree you reference shows how wealth begets wealth in an almost exponential way. But your proposed solutions suggest we might be able to harness that same exponential effect for broader prosperity...
I'm curious to learn more about how you think about the underlying challenges:
- Political Feasibility: Given how entrenched current equity structures are, what would it take to create momentum for more equitable distribution? The Clinton-era salary cap backfired spectacularly—how do we avoid similar unintended consequences?
- The Innovation Question: Silicon Valley's current model, inequitable as it is, has generated tremendous innovation. How do we ensure that more equitable distribution doesn't dampen the entrepreneurial dynamism you describe?
- Implementation: For companies wanting to move toward more equitable equity distribution today, what would you recommend as practical first steps? (I believe you've written a lot on this - I need to dig in)
Thanks for sharing. Great read.
Thank you for such a kind comment David, I really appreciate it!
Some thoughts on your challenges:
Political feasibility: Luckily, employee equity and employee ownership is a bi-partisan issue in the United States. We can and do pass legislation that improve this all the time. Also, it's worth noting that the Clinton error has also happened in reverse. The 401(k) was originally added as a tax shelter, a way for executives to earn salary without paying taxes on it. It was only later that others realized that loophold could actually benefit all workers, not just the top ones.
It is tricky though, because well meaning politics can have bad results. Robert Reisch was the head of the department of labor during the Clinton error and he said it resulted from a bad compromise. Companies wanted to be able to pay execs a lot of money (to be able to attract the best ones). Clinton wanted to cap executive pay. The compromise that gave them both what they wanted actually gave the companies what they wanted. I don't know how to solve that. But it's worth looking into how we can fix it.
Innovation: The Silicon Valley model resulted in lots of innovation. I see no reason why that same model couldn't continue to do so, even as it motivates and benefits a lot more people. Investors and executives can still get rich, but how much better would it be if a lot more people could get a lot richer too? Small tweaks to the system here could have big rewards.
Implementation: Small companies can set up as EOTs or cooperatives, or just do manual profit sharing with employees. Larger companies can become partial or even full ESOPs. When founders want to reture, they can sell some or all of their company to employees rather than to another company or PE. There's a lot that can be done here.
And I'll have even more call to actions coming soon!
Great stuff for new companies. But how would we deal with restructuring the current market that is so wildly overinflated.
I have a few ideas on that here if you're interested. This is something many organizations are already working on! https://www.elysian.press/p/120-million-employee-owners-in-one