The Corner

Economy & Business

Uber’s Great Idea to Offer their Drivers Equity at IPO Price

An Uber car drives in traffic on 6th Avenue in New York City, N.Y., July 27, 2018. (Mike Segar/Reuters)

Uber and Lyft, the two ride-hailing giants, both are planning initial public offerings of their stock. And both of them are doing something interesting: offering their most valuable drivers cash bonuses that can be exchanged for equity at the IPO price — giving them the opportunity to buy in on the same terms as the big Wall Street players. This is an excellent idea, and one that should be encouraged. As the Wall Street Journal reports:

It is typically hard for an ordinary investor to buy a company’s stock at its IPO price before it begins trading on an exchange, so this move would give drivers access they likely wouldn’t have had otherwise.

Uber is working out the details of a program expected to be valued in the hundreds of millions of dollars that would give a significant portion of its 3 million active drivers and couriers globally either a cash bonus or the option to use that cash to purchase shares at the IPO price, people familiar with the matter said. These awards will be tiered based on a sliding scale related to the driver’s length of service and number of trips or deliveries.

Democrats howled with derision at George W. Bush’s program for an “ownership society,” a set of policies that would encourage those with lower and middle incomes to invest in things like company shares and other assets and encourage employers to include such assets in their compensation packages. “Sweat equity” compensation for non-executive employees once was, famously, a part of the high-tech startup model: Microsoft’s IPO created three billionaires, but it also created about 12,000 millionaires, many of them mid-level employees in less specialized positions who had worked for the company for years while accepting equity in lieu of higher cash salaries.

(Question: Do we want to raise the capital-gains tax on $50,000-a-year administrative assistants and customer-service representatives who are cashing in 20 years’ investment, possibly making them millionaires?)

Much of our thinking about improving the real standard of living of the poor and those in or near retirement has to do with consumption, for which income is a good proxy when saving rates are low. That’s important and useful, especially when it comes to things like basic nutrition for children, education, and health care. (Consumption isn’t just flat-screen televisions and lottery tickets.) Those things represent relatively straightforward problems: We give poor people money to buy what they need or, to the extent that we do not trust them to make their own decisions with cash, give them vouchers (food stamps, etc.) or direct their consumption in other ways.

Higher income changes things today; higher wealth can change things for a lifetime, or even across generations.

The problem with schemes like Cory Booker’s “baby bonds” is that they are basically vouchers with a long timeline. Booker’s program would not create real wealth for poor families at all but instead would create cash equivalents that could be used against a limited number of purchases: down payments on houses, college tuition, etc. A better program might be one that linked the ownership of real assets to work — maybe something in approximately the shape of a negative income tax mated to an Australian-style private retirement account, in which additional work would produce both cash income for current consumption and long-term wealth.

Employers could be an important part of that, provided that we move away from the employee stock-purchase model that encourages worker-investors to put most of their savings into the stock of their employer, which creates a compound risk for them — putting them at risk of losing both their savings and their income simultaneously if the company fails.

If you want to spread the wealth, then spread the wealth– which is not the same thing as spreading the income.

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