Major Private Companies Facilitating Trading of Equity Compensation Awards

The New York Times, in an August 11 article, described how companies such as Uber, Airbnb, Pinterest, and SpaceX are allowing employees to sell some of their equity stakes to third parties, whether directly or via markets such as NASDAQ Private Markets, in return for restrictions on when and to whom they can sell their remaining equity interests. Most entrepreneurial technology companies give stock options, restricted stock, or other equity awards to most employees, but they only provide for liquidity upon an IPO or sale of the company. Employees may want (or need) to exercise an award before a liquidity event, especially if they leave the company. Exercise usually requires either buying options with after-tax dollars or getting restricted stock that is taxable. Options may incur additional taxes on the spread. By allowing employees to sell some of the exercised shares, companies make it possible for them to pay their taxes and acquisition costs. The companies want the restrictions, however, to prevent shares from being held by third parties they do not want owning significant stakes.