Chairman Kind’s Statement on House Passage Empowering Employees through Stock Ownership Act

Washington, DC – Today the House of Representatives passed H.R. 5719, the Empowering Employees through Stock Ownership Act (EESO). A large majority of New Dems supported this bipartisan bill, which will make it possible for more employees to obtain an ownership stake in the companies they help build and make it easier for startups to attract the talent necessary to grow the economy.

“Startups are critical to our nation’s economic growth, and stock options are a vital tool for attracting talented employees who can own a piece of the company they work for. This bill eliminates a provision that prevents startup employees from sharing in the potential financial gains of their companies,” said Congressman Ron Kind (WI-03). “As lawmakers, we should be looking for ways to promote more employee ownership and profit sharing so employees can share in the upside of all their hard work.”

Under current law, employees are often required to pay taxes on the value of stock options long before they are able to realize the economic value of those shares. This means that many private company employees cannot cover the cost of taxes at the time of exercise and vesting through the sale of shares, but, instead, must pay those costs out of pocket.

The bill would allow private company employees to defer taxes on stock options for seven years or until the stock is actually sold (versus when it is exercised). Because employees are typically required to pay taxes on the value of stock options before they can be sold, employees must currently cover these costs out of pocket, significantly reducing the value of the options and creating a burden both on employees and cash-strapped startups.