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Stock handouts may save US ruling class.

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Fed's Move to Tighten Liquidity Casts Shadow on the Euphoria in US Corporate Debt

Flags fly over the Federal Reserve building on a windy day in Washington, U.S., May 26, 2017. REUTERS/Kevin Lamarque/File Photo

Stocks now reflect the American ideal. The huge disparity between the ultra-rich and everyone else shows it. GE Aerospace CEO Larry Culp and buyout mogul Steve Schwarzman are pushing to give workers equity while lawmakers struggle to close the wealth gap. By doing so, they may prevent pitchfork-armed rioters from attacking the ruling classes.

US home ownership used to be a ticket to social mobility and wealth, and it still is for middle-class ascent. The U.S. Census Bureau reports that the median sale price for U.S. homes has tripled to $420,000 in 30 years. Owners’ household equity has grown quicker.
However, investing in huge public corporations has generated more wealth than real estate. According to LSEG data, the S&P 500 Index (.SPX) has returned almost 1,900%, including reinvested dividends, from January 1994. The top 0.1% of Americans own more over $9 trillion of the $40 trillion in national wealth obtained from company equities and mutual fund shares. The bottom half of the population has $400 billion in share-based assets, less than the wealthiest Americans did 30 years ago.

It’s heartening to see some CEOs and financiers recognize that stock ownership should be disseminated beyond top management to improve the workforce and boost poorer Americans up the economic ladder.
More study is needed to convince CEOs of the benefits of turning staff into owners, but a sprinkle says there are good reasons. Equity ownership increases loyalty, work happiness, and financial understanding. The best endorsement is senior executives’ strong regard for equity grants in their pay packages. Profit-hungry private equity firms sharing the spoils is another sign that the benefits outweigh the administrative overhead.

Slim, who owns Latin American telco America Movil,

Other problems include teaching personnel about equity. Many workers probably prefer to have more cash in stock. Employees are also understandably concerned about being financially dependent on their employer. Give shares without sacrificing wage increases or other benefits to resolve these issues.
Although employers can distribute equity more widely, employees usually buy it themselves. Some corporate leaders claim that issuing more stock makes it cheaper for employees. Chipotle Mexican Grill will give existing owners 49 more shares for each one they hold later this month, lowering the cost of each share from $3,100. Nvidia and others share this sentiment.

US corporations provide 401k retirement savings programs that invest in stock and bond indexes and match employee contributions up to a certain amount. In 2020, only about a third of working-age Americans had such accounts, the Census Bureau reported. Vanguard reported a median balance of less than $28,000 in 2022.
Employee stock ownership plans, which give workers holdings over time, are also rising. Room & Board opens new tab and recently switched to trust. The nonprofit National Center for Employee Ownership reported 11 million active ESOP participants in 2021, but workers cannot cash in until retirement.
Giving workers shares is more effective. Last month, GE Aerospace CEO Culp announced that all 52,000 employees will receive shares. The airplane engine and propeller manufacturer has not disclosed how much it will award and stated it is a one-time award, but it is a hopeful step for a significant U.S. firm.

Since it has long wanted its 4,700 U.S. store managers to “act like business owners,” Walmart announced earlier this year that each would receive $10,000 to $20,000 of stock annually. A wider initiative for the retailer’s 1.6 million employees would be ideal.
Blackstone (BX.N) is also supporting the slow-growing movement. In May, the alternative asset manager told fund backers it would extend broad stock ownership programs at Ancestry, Bumble and other portfolio companies to employees at large new U.S. investments in which it has a controlling stake. Copeland, a heating and air-conditioning company Blackstone bought for $13 billion, will offer equity-linked incentives to all 18,000 eligible employees.
Through its non-profit Ownership Works organization, co-head of global private equity Pete Stavros has had success with the approach, as has rival KKR (KKR.N). At Minnesota Rubber and Plastics, all 1,400 employees became owners under KKR’s leadership, improving safety and reducing attrition. In 2018, non-managers who joined the company around the original investment earned average compensation equal to around 12 months of annual salary when KKR sold it four years later.
Workers can eliminate credit card debt, pay off home loans, and fund college with such results. KKR intends to pay more than $6 billion to 80,000 non-senior-management employees in its 35 active equity-sharing programs if the business trebles its initial investment.
Corporate America alone cannot fix wealth inequality. Even if Culp and his allies refuse to lower their share stakes, dispersing wealth down the ranks could help narrow the gap. CEOs may have other goals, but they benefit themselves.

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