March 4, 2019

IPOs by Uber and Lyft: Employee Ownership and the Gig Economy

Executive Director

In a February 28 Wall Street Journal article, Maureen Farrell reported that both Uber and Lyft plan to allow their most active drivers to participate in their initial public offerings (IPOs). Uber, which expects its IPO in May or June, anticipates a program for "a significant portion of its 3 million active drivers and couriers globally either a cash bonus or the option to use that cash to purchase shares at the IPO price." The program is expected to be worth hundreds of millions of dollars.

Lyft promised to release more details about its plan today (March 1). Lyft is expected "to give its drivers who have logged at least 10,000 rides on the platform $1,000 that can be kept or used to buy the company's IPO shares," and drivers with 20,000 rides would be eligible for $10,000 in cash or stock. Lyft's plan would apply to a minority of its drivers.

Writing in the National Review, Kevin Williamsom praised these plans, saying that employee ownership was a practical way for the right to respond to efforts by Democratic presidential candidates to use the tax system to create higher incomes for low and moderate-income Americans. "Higher income changes things today; higher wealth can change things for a lifetime, or even across generations," he wrote.

Williams went on to say that promoting employee ownership is an example of a program "that linked the ownership of real assets to work...Employers could be an important part of that, provided that we move away from the employee stock-purchase model that encourages worker-investors to put most of their savings into the stock of their employer, which creates a compound risk for them — putting them at risk of losing both their savings and their income simultaneously if the company fails." Oddly, the Uber program does encourage employees to use their own after-tax money to buy stock, unlike ESOPs, which are almost always funded by employers.

A lesser-known ride-sharing company, Bounce, gives its drivers 1,000 stock options when they sign up, and more at various milestones, each batch with its own 25-month vesting schedule. Every month a driver is active, the driver vests in 4% (1/25th) of her or his options.