In his 2018 letter to CEOs, Larry Fink, Blackrock’s Chairman and CEO, tells them to prepare for year-round engagement from Blackrock. With stocks continuing to climb, while employees see stagnant wages and have concerns for their retirement, Fink tells companies they must do more than drive quarterly earnings. He begins by asking each company to share their strategic framework for long-term growth and concluded by telling companies they
Larry Fink, CEO Blackrock
“must ask themselves:
What role do we play in the community?
How are we managing our impact on the environment?
Are we working to create a diverse workforce?
Are we adapting to technological change?
Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world?
Are we using behavioral finance and other tools to prepare workers for retirement, so that they invest in a way that will help them achieve their goals?”
Blackrock is backing up their request by doubling the size of their investment stewardship team over the next 3 years.
There are many good tax reform issues in both versions of the tax plan. The top marginal rate for corporations has to be lowered. Good job on that. At the same time, US companies do not come close to paying the most taxes of any industrialized economy, so stop saying they do and don’t go borrowing $1.5 Trillion from our children — $1.2 Trillion of it to provide corporate income tax cuts — to pay for these cuts. By the way, this seems to go against the years of debt reduction talk. So let me make it clear, “Don’t add to our children’s debt burden! Just don’t!”
And as Lt. Columbo would often say, “Oh, oh, one more thing before I forget.”
Taxing stock options and RTUs at the time of vesting will be a start-up and innovation killer. It’s not complicated. You are taxing folks for “earnings” when those “earnings” not only have not been converted to cash, in many cases the holder CANNOT convert them to cash. This makes no sense.
Many early stage companies attract talent by offering lower cash compensation and stock options. These options align employee and company incentives. They reduce the capital required by the company, increasing the chance they will be successful. Some of these companies become very valuable and create a lot of wealth for the employees due to these options. For any one company there is a small chance the stock becomes valuable. For any one person, there is even a smaller chance that your options have value when you leave the company. Your plans to tax these options when they vest will create a tax liability for an asset that has not yet delivered any cash, and may never deliver any value. Only wealthier employees will be able to pay the liability and it’s unlikely they will be eager to do so. Younger and less well-to-do employees will not be able to participate in this company ownership program at all.
The bottom line is managers like me will greatly reduce or simply stop offering stock option programs. The harm from this tax liability will be too great for our employees. Therefore fewer talented people will go to early stage, innovative companies. I’m not the only one that feels this way. And less talent to innovative companies will hurt the US. This will hurt younger employees. This will hurt people from poorer families.
Is that what you want? Are you trying to stop companies from issuing options as compensation? Why are you doing this?
If it ain’t broke don’t go busting it