Stock Grants, Tax Incentives, and Fiduciary Reality: A Reappraisal of Voluntary Equity Distribution

David Frederick

No 32ayb_v1, SocArXiv from Center for Open Science

Abstract: Author David Frederick, MBA Principal, Mercer NYU Stern School of Business (Alumnus) Project Description This working paper critically examines the structural limitations of voluntary, tax-incentivized equity compensation programs—such as RSUs, ESPPs, and synthetic equity—in delivering broad-based ownership to the American workforce. Drawing from fiduciary law, corporate governance design, valuation modeling, and public policy, the paper argues that non-ERISA equity vehicles fail to scale because they rely on discretionary corporate behavior, lack regulatory oversight, and expose workers to unmanaged concentration risk. In contrast, the paper proposes that fiduciary-aligned, ERISA-governed structures—particularly S Corporation ESOPs—offer a more viable, institutional pathway to inclusive employee ownership. It presents a second-best equilibrium framework, acknowledging the imperfections of ESOPs while demonstrating their superior governance, statutory protections, and retirement wealth-building potential when compared to unregulated stock grants. The analysis is grounded in empirical evidence across more than 100 studies, including data on firm survival, productivity, turnover, and account balances. The paper concludes with five policy design recommendations to expand inclusive ownership, including reforms to ESOP liquidity structures, diversification constraints, and legal safe harbors for fiduciaries. This project seeks to reframe employee ownership policy as a question of institutional design rather than tax incentives alone, and positions inclusive equity as a structural feature of sustainable capitalism, not a voluntary perk for a privileged few.

Date: 2025-08-07
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:32ayb_v1

DOI: 10.31219/osf.io/32ayb_v1

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