Podcast August 4, 2021

Corporate Equity Plans & Cashless Participation with Aaron Shapiro

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Cashless participation is the catalyst in the mission to drive equitable stock ownership through ESPPs. Aaron Shapiro, CEO & Founder of Carver Edison, is here to tell us all about it in the latest episode of Payments Innovation.

Aaron’s journey into the corporate equity niche

Moving from college into a startup, Aaron was plunged into the deep end, taking responsibility for growing the wealth of others. His early success with investing on behalf of NPOs, foundations, and endowments caught his mother’s attention. This is when he discovered the framework for employee stock purchase.

How does an employee stock purchase process work?

In Aaron’s mother’s context, employee salaries would incur a deduction every 2 weeks or so for a period of 6 months. The accumulated funds would be used to buy the employee stock at a discounted rate at the lowest price the stock had been in that 6-month period. An investor’s dream!

Fun fact: John Rockerfeller Standard Oil was the first to roll out employee stock purchase plans (ESPPs) in the 1920s.

As the concept grew, it became written into the tax code in the mid-1960s.

Since the ESPP was introduced even before the Civil Rights Act, it makes sense that people like Aaron are looking to update them in line with the way that society functions today.

His goal: update ESPPs to maintain their integrity and original intentions to create wealth for working-class people.

Where does Carver Edison fit in on the ESPP spectrum?

Based in New York, Carver Edison is a Fintech company that drives equitable stock ownership for the world’s workforce, particularly for people working at publicly traded companies.

Their proprietary method for doing this is called cashless participation. Carver Edison closes the gap between what people can afford and the maximum stock ownership option available to them, sending the company the value of the difference between the two.

“People are twice as likely to stay on corporate equity plans that they can afford.” — Aaron Shapiro

This process creates a win-win-win result:

  • Employees are able to own 50-150% more stock with Carver Edison involved.
  • Managers move a few percentage points closer to their targets.
  • Shareholders are pleased that more working capital enters the business and can be reinvested for further growth.

Let’s quantify that impact

Under federal law, US citizens may contribute up to $25k each fiscal year, toward ESPPs. Discounts need to be factored in, so at a 15% discounted purchase price, employees may contribute up to $21 250p.a. There are tens of millions of people working for publicly traded organizations around the world, so even using this dollar value as a benchmark and multiplying that out accordingly indicates the true scale of this ‘niche’ market.

The real X-factor is that lookback feature: getting the discounted rate on the lowest stock price from the period in question.

“We’ve had people on our platform turn roughly $3k into $115k over the course of 18 months, because of cashless participation.” — Aaron Shapiro

Aaron’s team has also found that lower-income employees, if using cashless participation, will run with ESPPs for much longer than they would for, without having a feature like this available. This means more families moving from rent to homeowner status; more college funds for children and ultimately more progress for entire communities.

Do ESPPs offer diversification opportunities?

Savvy investors know that diversifying your portfolio is a smart strategy. Why? Because it mitigates risk.

Cashless participation mitigates risk, too. 

Actually owning more stock than you personally could afford to buy means that your stop loss and buffer space flex too. Instead of losing money on a 15% stock price drop (in the case of a regular ESPP), you’d only start losing if the company’s stock price fell by something drastic like 50%.

Does a volatile investment market affect cashless participation?

The recession of 2008 taught us that more tools and options are needed to manage personal finance and wealth. The Fintech industry, specifically companies like Carver Edison, has responded to provide just that. The outcome has been unprecedented access to and control over personal investment opportunities during a black swan event like the COVID-19 pandemic.

Access to opportunity requires access to information

To access opportunities, people need to know about them, but language barriers and jargon get in the way. This is an especially tough challenge for MNCs to overcome so Carver Edison provides this service as well.

Aaron’s team is devoted to doing what it takes to make wealth creation equal and equitable.

A closer look at the win-win-win situation

Corporate social responsibility and redressing social injustice go hand-in-hand. We know that it’s not enough to be equal to each other on paper: there must be action. 

Cashless participation is a catalyst for that action.

By law, ESPPs can’t provide preferential treatment or options to any employees. But personal prejudice always finds a way forward. For people who have been continually excluded from accessing investment opportunities (even generationally), this system makes it possible to participate in the investment cycle. There is less risk and less financial sacrifice for them to do so.

“We’re reducing the compensation expense for companies by north of 50%.” — Aaron Shapiro

The domino effect: the reports look slightly different and the business value increases. Shareholders win, too.

Getting buy-in and managing the movement of funds

Cashless participation sweeps through the full breadth of an organization that’s using it. Everyone from legal and finance teams to the HR manager, who is striving to achieve DEI goals, needs to buy into the model. 

The goal remains the establishment of equitable stock ownership across all organizational levels.

The future of corporate equity plans

It’s all about cashless participation, according to Aaron. This concept has more room to grow in the coming years, and maybe it will even become the norm, this time next decade.

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Until next time!

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