Bills
| 3.23.22

Should it be Easier for Growing Companies to Offer Employees Stock? (H.R. 1343)

Do you support or oppose this bill?

What is H.R. 1343?

(Updated March 25, 2019)

This bill would direct the Securities and Exchange Commission to revise regulations to require a business that issues securities to provide investors with additional disclosures about employee equity compensation plans if the total value of securities issued during the last 12 months exceeds $10 million. The value of the securities sales that triggers the disclosure would be raised from $5 million to its new level of $10 million, and would be indexed to inflation every five years then rounded to the nearest $1 million going forward.

Disclosures would include risk factors, copies of the compensation plans and financial statements.This change would take effect within 60 days of the enactment of this legislation.

Argument in favor

Many companies use stock compensation as a tool to incentivize their workers, but reporting requirements for issuing stock beyond a certain level can act as a deterrent. Raising the threshold from $5 million to $10 million will make it easier to do so.

Argument opposed

Lower thresholds and the reporting requirements that go with them help ensure proper oversight and avoid questionable business practices. Besides, a company shouldn’t be issuing stock if its not willing to open its books and be forthright.

Impact

Investors, companies issuing securities, and the SEC.

Cost of H.R. 1343

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Rep. Randy Hultgren (R-IL) introduced this legislation during the 114th Congress as well to make it easier for "companies to offer ownership to their hardworking employees," saying at the time:

"Employees who own a stake in the company they work hard for every day have a strong incentive to see that company does well. When the company succeeds, the employee succeeds. Employee-owned companies in my district have shown me first-hand how important ownership is to boosting a company’s performance, and attracting top talent. Unfortunately, high compliance costs and red tape limit how much ownership these companies can safely offer to their deserving employees. Forcing a company to make confidential disclosures that could easily fall into the wrong hands and harm the company is not the way to encourage more ownership. We should be applauding employee ownership in businesses from the board room to the shop floor. My bill would open up more opportunities for employees to be further rewarded for pouring sweat into their jobs every day."

Several Democrats on the House Financial Services Committee offered a joint dissent to this bill that focused on the need to keep the requirement for disclosures at companies that offer more than $5 million in securities to give employees the ability to "know the value of their shares" and understand the risks of the securities. They also pushed back against Republicans' arguments about the bill's benefits:

"Some proponents of the bill cite the costs of disclosure and fear of confidential information being leaked to competitors. However, to take advantage of the increased threshold under the bill, a company would need to have over $34 million in total assets. Requiring such large companies to provide the minimal disclosures cannot be seen as too burdensome. In addition, non-disclosure agreements and similar confidentiality agreements are already effective mechanisms to prevent unauthorized disclosure."

This bill was passed by the House Financial Services Committee on a vote of 48-11. During the 113th Congress, a similar version of this legislation passed the House by a vote of 320 to 102, but stalled in the Senate. And during the last Congress, it passed 265-159 in the House but didn't get a vote in the Senate.


Media:

Summary by Eric Revell
(Photo Credit: Flickr user andreas_poike)