Uber, Airbnb seek federal OK on stock grants for gig workers
As San Francisco retirees, Karen and Rodolfo Cancino appreciate the income they make by renting a room in their Western Addition Victorian to Airbnb guests. They’re also enthusiastic about an idea that Airbnb — like other gig economy companies — is pursuing: granting shares of the company to its hosts.
“We’ve talked about it: ‘Wouldn’t it be nice to have stock in Airbnb?’ ” said Karen, a former social worker.
“It absolutely would increase our loyalty,” said Rodolfo, who worked as a teacher.
Loyalty is key for gig companies that rely on independent contractors. That’s why Airbnb, Uber and Postmates have written to the Securities and Exchange Commission, urging it to modernize rules so they can reward hosts, drivers and couriers with stakes in the companies.
Stock grants (shares, often contingent on working for a certain time or meeting certain goals) and stock options (the right to buy stock at a certain price for a given length of time) are the currency of Silicon Valley, an enticing lure to attract,
motivate and retain employees with the potential of big payouts down the road if companies get sold or go public and perform well on Wall Street.
But the financial largesse does come with a price tag, some experts say: It could discourage gig workers from pursuing other rights, including the crucial one of whether they should be reclassified as employees rather than contract workers.
While some Uber and Lyft drivers and other gig workers have sought that change, most gig companies have fiercely resisted reclassification of contractors as employees because it would cost them a lot more and remove the flexibility they say is key to their businesses.
Gig workers are shut out under current securities rules, which limit stock compensation to employees, directors and consultants. This summer, the SEC released a 56-question survey, seeking input about updating rules for the new era in which a third of the workforce is composed of freelancers.
“The American economy is rapidly evolving, including through the development of both new compensatory instruments and novel worker relationships, often referred to as the ‘gig economy,’ ” SEC Chairman Jay Clayton said in a statement. “We must do all we can to ensure our regulatory framework reflects changes in our marketplace, including our labor markets.”
Gig companies generally are marketplaces connecting supply with demand. The supply — such as rooms for rent or cars for hire — is provided by independent contractors, making gig companies heavily dependent on nonemployees, whom many of the companies refer to as “partners.”
Those companies want to make their vital suppliers happy.
“We would be nothing without our hosts,” Airbnb CEO Brian Chesky said in a statement about its September letter to the SEC. “We would like our most loyal hosts to be shareholders, but need these policies to change in order to make that happen.” Others had similar takes. “Enabling privately held companies to grant equity compensation to independent contractors (or ‘gig’ workers) performing services on the platform, at an earlier stage, would both enable platforms to attract and retain talent, while also diversifying the types of benefits gig-workers may derive from the on-demand economy,” San Francisco delivery service Postmates wrote to the SEC last week in a letter obtained by The Chronicle.
“Providing equity would allow (drivers) to share in the growth of the company which could lead to enhanced earning and savings opportunities,” Uber wrote the SEC this month, in a letter first reported by Axios. It said that equity grants should not be contingent on requiring contractors to derive all or most of their income from marketplaces, noting that many work for multiple companies.
How this might be structured is still up in the air, and there would be tax and policy considerations to work through.
Still, it’s an intriguing and innovative idea, said Lenny Mendonca, chair of nonpartisan think tank New America. He sees it as akin to the concept of portable benefits — benefits not tied to particular employment. He and others have espoused portable benefits as a way to make sure the growing contingent workforce isn’t deprived of important social safety net protections.
“It’s also a smart business idea,” Mendonca said. “If you listen to the radio, there are more ads for drivers than customers for Uber and Lyft.”
Uber and Lyft both experience lots of churn — most drivers quit within a year.
“We think (giving equity) would boost retention rates and provide more update to drivers,” said Andy Pillsbury, a vice president at SherpaShare, which helps drivers track earnings. “It only makes sense that drivers should be able to participate in the companies’ success.”
Veena Dubal, a law professor at UC Hastings who studies the gig economy, criticized the stock concept as a way to muddy the waters on drivers’ employment status. A groundbreaking California Supreme Court decision in May narrowed the definition of gig workers, increasing the likelihood of future legal actions about whether drivers and others should be employees.
Getting an exemption to give equity to drivers “further entrenches the fiction that these guys are not employees,” she said. “I’m troubled that they’re trying to create another regulatory loophole instead of admitting that drivers are employees.”
She thinks getting stock will make workers “less likely to stand up and speak out” about perceived injustices.
Grants to gig workers may not be as substantial as those celebrated in Silicon Valley mythos.
“If you work for a private company, you may get less salary and bonus compensation in exchange for fairly large stock grants that you hope will pay off in life-altering wealth when the company goes public,” said Bruce Brumberg, editor in chief of MyStockOptions.com, an online education resource. “Any grants to drivers are likely to be smaller.”
Still, if the companies get a green light to grant stock now, before their expected public offerings, the rewards could be significant.
“The idea would be to get stock in the hands of people now because there will be a big run-up after the IPOs,” Brumberg said. Wall Street is currently jazzed about tech companies, increasing the likelihood that many, including Uber, the world’s most valuable startup, as well as Airbnb and Lyft, will debut next year.
Several pre-IPO gig economy companies, including Lyft, DoorDash, Handy and Instacart, did not respond to queries about whether they would like to offer stock to their gig workers.
But Jon Gallez of San Mateo, who drives part time for DoorDash, was gung ho about the idea.
“I’ve been extremely loyal to DoorDash and would love to get a piece of the pie before it starts baking in the oven,” he said.
The Cancinos have seen the loyalty effect of stock grants through their son, who got options while working at startups and stayed longer at those companies as a result. They understand the symbiotic nature of their relationship with Airbnb.
“Airbnb provides a lot of extra services that make it so easy for us,” Karen Cancino said. “But of course, without the home shareres like us, they would not be in business. We’d love to participate in an equity program with them.”
Carolyn Said is a San Francisco Chronicle staff writer. Email: csaid@sfchronicle.com Twitter: @csaid