Today, Congressman Bill Huizenga (MI-02) spoke on the House floor in support of H.R. 1343, the Encouraging Employee Ownership Act. This legislation would provide greater opportunity for small businesses to compete with larger companies by reforming SEC Rule 701 which places burdensome federal filing requirements on employee compensation packages. By lifting the threshold, small businesses will be able to better retain and attract talent. H.R. 1343 passed with strong bipartisan support by a vote of 331 to 87.
Rep. Huizenga’s Remarks:
Small businesses and entrepreneurs are what drive the American economy. I meet them in West Michigan and I see firsthand the benefits that their dreams, their innovations, their inspirations, and their hard work provide to our communities. These innovators, entrepreneurs, and risk-takers are critical to our country’s economic growth and prosperity. In fact, small businesses are responsible for 60 percent of the nation’s net new jobs over the past two decades. So if our nation is going to have an economy that provides opportunities for every American, then we must promote and encourage success and growth of our small businesses and startups. It’s this notion that brings us to the legislation we are discussing today.
H.R. 1343, the Encouraging Employee Ownership Act, would simply level the playing field for small companies by updating federal rules to allow small businesses to better compensate their employees with ownership in their own businesses. Currently, SEC Rule 701 permits private companies to offer their securities as part of written compensation agreements to employees, directors, general partners, trustees, officers, or certain consultants without having to comply with rigid federal securities registration requirements. The SEC Rule 701 therefore allows small companies to reward its employees. Despite the SEC having the authority to increase the $5 million disclosure threshold via rulemaking, the SEC has once again chosen to prioritize highly politicized regulatory undertakings instead of focusing on its core mission – that mission includes the facilitation of capital formation. If the SEC cannot, or will not focus its priorities, Congress will.
It is imperative that small businesses in West Michigan, all of Michigan, and across America have the ability to compete. A critical element of competition and success is for small businesses to be able to offer compensation packages that attract and retain top-tier talent. In today’s world, that includes rewarding employees with stock options. To me this just makes common sense. Small business employees have a clear and vested interest in the success of their employer. By increasing Rule 701 to the threshold of $10 million, it will give private companies more flexibility to attract, reward, and retain employees. This simple change would allow companies to offer twice as much stock to their employees annually without having to trigger additional disclosure information to investors about compensation packages that include securities offerings.
By removing this regulatory burden, start-ups, small businesses, and emerging growth companies will be better equipped to attract highly talented individuals from companies that are better capitalized and able to provide cash incentives and compensation. By incentivizing employees with stock options, small businesses will now be able to compete on a more level playing field in order to retain valuable employees. This bill is an example of the positive bipartisan results that can be achieved when Republicans and Democrats reach across the aisle.
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