Aaron Shapiro

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Back in 2014, when Aaron Shapiro was recently out of college and working at a job in finance, his mother asked him about her company’s employee stock purchase plan (ESPP). What he discovered was that, while ESPPs were potentially a surprisingly good deal, most employees couldn’t afford the payroll contributions required to participate. “This is one of the most lucrative financial products on a risk-adjusted basis, but most employees can’t take advantage of it,” he says.

So he decided to build a platform to make ESPP participation economically feasible for the low and mid-level employees of the approximately 1,200 public companies with such plans. In 2016, he founded a startup called Carver Edison to do that.

Written into tax law in the late 1960’s, ESPPs provide a way for employees to buy their company stock at bargain basement prices. Generally, they can purchase shares at a 15% discount off of the lower of the starting or ending price in a six-month period. But, there’s one pesky flaw in the law. To participate, employees need to be able to afford to make payroll contributions to their plan, and many simply can’t do that.

As a result, says Shapiro, “The people who could really benefit from this, the rank and file, sit on the sidelines, while their higher earning colleagues make all the money.”  (Another problem, according to Shapiro: The limit on employee contributions hasn’t changed since the plan was written into tax law).

Shapiro’s plan: Make interest-free loans allowing employees to maximize their participation in their company’s ESPP. Employees sign up for the plan and select the amount to be taken out of their paychecks—say, 5% every two weeks for six months. Right before the end of that six-month period, Carter Edison writes a check to the employer through a temporary interest-free loan on behalf of the employee, maximizing that person’s contribution. Then the employer issues the appropriate amount of stock, Carter Edison sells enough shares to repay the loan and the net shares are deposited in the employee’s account. The company works with banks and special lenders to finance the process.

How do ESPPs benefit employers? According to Shapiro, they end up with tax write-offs and a lot of tax-free cash on their balance sheets. “These plans are an extremely capital-efficient way for a company to increase the compensation of employees without having their feet held to the fire,” he says.

Carter Edison makes money in a few ways. When the company sells enough shares to repay those loans, it gets paid a transaction fee by banks and hedge funds. In addition, it takes care of employee education. Most employers don’t throw a lot of resources at teaching their workforce what ESPPs are. But Carter Edison doesn’t make any money unless employees sign up. So it’s developed educational workshops that companies pay for.

Shapiro started wrestling with his plan soon after he discovered ESPPs’ potential. Then, after he founded the company, he spent the first two-and-a-half years dealing with regulatory problems, as the folks at the IRS diligently worked to understand and vet the concept. “I had no idea how many layers we’d have to peel through to get to the bottom of it,” he says. “And we went slowly, so there weren’t any surprises.” Eventually, the IRS issued a private letter ruling that the mechanics of his plan were qualified under tax law. In short order, the product officially launched just last January.

By the end of the year, according to Shapiro, he expects to be offering the plan to more than 15,000 employees. Also, he says, “Over the next couple of months we’re going to announce significant partnerships with a lot of the important players in the industry.”

To date, Shapiro has raised a little over $1.3 million in funding for the company.

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