WashingtonTechNet, the national, bipartisan
network of innovation economy CEOs and senior executives, today applauded Senators
Mark R. Warner (D-VA) and Dean Heller (R-NV), members of the Senate Finance Committee,
for introducing legislation that would make it easier for startups and businesses to give employees an ownership stake
in their company’s success by awarding stock options.

Stock options
are an important tool for rewarding employees and increasing their compensation. However, the tax implications of exercising stocks
options often make this impractical for many employees of startups and non-public
firms. The Empowering
Employees through Stock Ownership Act
is designed
to reduce this barrier to exercise stock options and promote broad-based employee
ownership by giving employees new flexibility in handling their tax obligations.

“The number one thing we can do
to create jobs in this country is to help more startups grow,”
said Linda Moore, TechNet president and CEO. “TechNet supports the Empowering Employees through Stock Ownership Act because it will allow
startups to grow faster, create jobs, and reward their employees for their hard
work.”

The Empowering
Employees through Stock Ownership Act
will:

  • Reduce the barrier
    to exercise stock options:
    The legislation extends the time period in which employees
    are required to pay tax upon exercise of stock options or RSUs that are settled
    for stock up to seven years. The amount of
    tax the employee can elect to defer is calculated in the same manner as under current
    law: the excess of the fair market value of the stock, over the amount the employee
    pays for the stock.
  • Promote broad-based
    employee ownership:
    To qualify for the deferral of income tax, the company
    is required to grant options to 80 percent or more of its employees on an annual
    basis; must offer employees stock options on similar terms; and the stock cannot
    be traded on an established market. The legislation
    is not intended to benefit the most compensated employees or the largest owners
    of a company. Individuals who own one percent
    or more of the company and those who control the company, such as the Chief Operating
    Officer, the Chief Financial Officer, and the four most highly compensated
    officers, are not eligible.
  • Require employees
    to be fully informed:
    There may be instances where the stock price of the
    company declines after the employee elects to defer income tax liability. It is critical that employers provide employees
    with information, through a written notice, on the tax consequences of this election,
    and failure of the company to provide a notice to an employee will result in a penalty.
  • Use existing administrative
    tax rules and provide worker flexibility:
    Similar to other tax elections in
    the stock options space, the employer will be required to report the future tax
    liability on the employee’s Form W-2. Once
    the employee has the cash to pay the tax, a tax deferral is no longer permitted. In other words, if stock of the company becomes
    readily tradable on an established market, or the employee decides to sell or transfer
    part or all shares to another individual before the seven-year time period ends,
    the employee will have to pay the tax. The
    employee can also decide to revoke the deferral and pay his or her income tax at
    any point.

A copy of
the bill text is available here.

About TechNet
TechNet is the national, bipartisan
network of technology CEOs and senior executives that promotes the growth of the
innovation economy by advocating a targeted policy agenda at the federal and 50-state
level. TechNet’s diverse membership includes
dynamic startups to the most iconic companies on the planet and represents more
than two million employees in the fields of information technology, e-commerce,
advanced energy, biotechnology, venture capital, and finance. TechNet has offices in Washington, D.C., Silicon
Valley, Sacramento, Seattle, Boston, and Austin.