I was just happy to have a job upon college graduation. My college buddies with whom I was going to live had wealthy parents, so they got to travel in Europe for the several months after graduation and delayed their work start-dates into September. I had no money and had to come up with first and last months’ rent, along with a security deposit and some furniture, so I worked for the summer before moving into an apartment with them. I wasn’t picky about my employer – I focused on the cash compensation only and thus didn’t spend much time comparing benefits programs from the few companies that offered me a job.

Not many people can begin a work career by starting a company. But people can choose to work at a company where they could be both a wage-earner and also be an owner. How does that work? Well, many companies offer restricted stock, stock options, discounted stock purchase programs, ESOPs, and the like. I don’t believe that these programs are valued by employees as much as they should be. There is great value owning shares, possibly even if the wage-earner has to buy shares in the company in the public markets.

Being an owner encourages a worker to evaluate the whole business, not just the job itself. Before taking a position, a worker should think about whether they would want to be an owner of business employing her. How is the company valued by the market? How does the company earn a profit? What has been the company’s growth rate? What is the company’s market size? If a wage-earner wouldn’t want to own stock in the business, what are the prospects for working there? The best career opportunities for young people come from working in growing businesses competing in big markets.

Further, knowing the answers to these questions about a business will also make the wage-earner a smarter, better-informed employee.  It amazes me that many employees don’t even understand the businesses where they work. When working for a company, understanding the larger picture can help the employee make better decisions each day to maximize profitability, improve productivity, help customer retention, and more. If an employee has the ownership incentive to stay aware of the company’s market position and sees that the stock is suffering because of growing challenges, it might encourage the employee to look elsewhere for better opportunities.

The obvious benefit of stock ownership is another possible source of income.  In my early 30s, I was offered a job at an early stage company where I would have to take a 40% cut in cash compensation, but where I was granted 40,000 options to buy shares of company stock in the future at a share price set on my starting date.  I took the chance and, as luck would have it, the stock price rocketed in value.  My employment contract stated that I had to work four years to earn all of the stock options, but I was able to buy shares at the set lower price incrementally over the four years and then immediately sell on the public market at the current higher price.

Most employees won’t complain when making money in company stock, but stock gains are taxed in two ways – one favorable way as capital gains, one much less favorable as earned income. Many stock option proceeds, if the stock is bought and sold quickly, are taxed at high income tax rates.  The option holder could choose to exercise the options to buy the shares, but then hold those shares long enough to get to long-term capital gains tax rates, but then the now-stock-owner is exposed to market risk while holding the shares. The proceeds from other stock ownership models (restricted shares, discount purchase programs, etc.) each have different tax implications and strategies, which may be worth exploring if relevant.

There are many financial planners who don’t like to see people with too much of their net worth invested in their employer’s stock, because if the company tanks, a person could lose both a job and years of savings. I agree that is a serious risk and needs to be balanced with other goals, but wealth is created by concentrated risk – wealth is maintained by diversification (more on this later). In hindsight, I wish that I had been more educated in the value of owning stock in the companies where I worked when I started my career.