SEC Proposes Equity Pay for Tech Firm Gig Workers

A proposed rule change would allow internet platform workers to "participate at a measured level in the growth of the companies that their efforts ...
Matthew HellerNovember 25, 2020

The U.S. Securities and Exchange Commission has proposed rule changes that would allow tech firms to pay gig workers up to 15% of their annual compensation in equity rather than cash.

The changes would apply for a five-year trial period to Rule 701, which permits companies to issue securities as a form of compensation without being subject to the usual registration requirements.

Under the proposal, companies that employ workers who “provide bona fide services by means of an internet-based platform or other widespread, technology-based marketplace platform” would be able to use Rule 701 to compensate them with stock.

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“Work relationships have evolved along with technology, and workers who participate in the gig economy have become increasingly important to the continued growth of the broader U.S. economy,” SEC Chairman Jay Clayton said in a news release.

“The rules we are proposing today are intended to allow platform workers to participate at a measured level — up to 15% of their compensation — in the growth of the companies that their efforts support,” he added.

But the SEC’s two Democratic commissioners, Caroline Crenshaw and Allison Herren Lee, voted against the proposal, suggesting it was unfair to other companies that use alternative workers.

“We cannot find any principled basis for the policy choice to single out a specific platform-based business model for a particular competitive advantage,” they said in a statement.

As The Wall Street Journal reports, “The proposal marks the latest move by Mr. Clayton and one of his top deputies, former Silicon Valley deals lawyer William Hinman, to expand access to private securities.”

“Issuers operating internet-based marketplace platforms may have the same compensatory and incentive motivation to offer equity compensation to individuals participating in their platform-based businesses as they do to their employees,” the SEC said.

Critics of the gig economy contend that the push by tech firms to pay their workers in stock reflects a desire to reap the benefits of employing, in some cases, thousands of people while avoiding the responsibilities, such as offering benefits and paying the minimum wage.