Finance
European tech brain drain ‘number one risk’ ahead of IPO
Sebastian Siemiatkowski, CEO of Klarna, speaking at a fintech event in London on Monday, April 4, 2022.
Chris Ratcliffe | Bloomberg via Getty Images
A European technology talent brain drain is the biggest risk factor facing Klarna as the Swedish payments company gets closer to its upcoming initial public offering, according to CEO Sebastian Siemiatkowski.
In a wide-ranging interview with CNBC this week, Siemiatkowski said that unfavorable rules in Europe on employee stock options — a common form of equity compensation tech firms offer to their staff — could lead to Klarna losing talent to technology giants in the U.S. such as Google, Apple and Meta.
As Klarna — which is known for its popular buy now, pay later installment plans — prepares for its IPO, the lack of attractiveness of Europe as a place for the best and brightest to work has become a much more prominent fear, Siemiatkowski told CNBC.
“When we looked at the risks of the IPO, which is a number one risk in my opinion? Our compensation,” said Siemiatkowski, who is approaching his 20th year as CEO of the financial technology firm. He was referring to company risk factors, which are a common element of IPO prospectus filings.
Compared to a basket of its publicly-listed peers, Klarna offers only a fifth of its equity as a share of its revenue, according to a study obtained by CNBC which the company paid consulting firm Compensia to produce. However, the study also showed that Klarna’s publicly-listed peers offer six times the amount of equity that it does.
‘Lack of predictability’
Siemiatkowski said there a number of hurdles blocking Klarna and its European tech peers from offering employees in the region more favorable employee stock option plans, including costs that erode the value of shares they are granted when they join.
In the U.K. and Sweden, he explained that employee social security payments deducted from their stock rewards are “uncapped,” meaning that staff at companies in these countries stand to lose more than people at firms in, say, Germany and Italy where there are concrete caps in place.
The higher a firm’s stock price, the more it must pay toward employees’ social benefits, making it difficult for companies to plan expenses effectively. Britain and Sweden also calculate social benefits on the actual value of employees’ equity upon sale in liquidity events like an IPO.
“It’s not that companies are not willing to pay that,” Siemiatkowski said. “The biggest issue is the lack of predictability. If a staff cost is entirely associated with my stock price, and that has implications on my PNL [profit and loss] … it has cost implications for the company. It makes it impossible to plan.”
In the past year, Siemiatkowski has more clearly signalled Klarna’s ambitions to go public soon. In an interview with CNBC’s “Closing Bell,” he said that a 2024 listing was “not impossible.” In August, Bloomberg reported Klarna was close to selecting Goldman Sachs as the lead underwriter for its IPO in 2025.
Siemiatkowski declined to comment on where the company will go public and said nothing has been confirmed yet on timing. Still, when it does go public, Klarna will be among the first major fintech names to successfully debut on a stock exchange in several years.
Affirm, one of Klarna’s closest competitors in the U.S., went public in 2021. Afterpay, another Klarna competitor, was acquired by Jack Dorsey’s payments company Block in 2021 for $29 billion.
Klarna brain drain a ‘risk’
A study by venture capital firm Index Ventures last year found that, on average, employees at late-stage European startups own around 10% of the companies they work for, compared to 20% in the U.S.
Out of a selection of 24 countries, the U.K. ranks highly overall. However, it does a poorer job when it comes to the administration burdens associated with treatment of these plans. Sweden, meanwhile, fares worse, performing badly on factors such as the scope of the plans and strike price, the Index study said.
Asked whether he’s worried Klarna employees may look to leave the company for an American tech firm instead, Siemiakowski said it’s a “risk,” particularly as the firm is expanding aggressively in the U.S.
“The more prominent we become in the U.S market, the more people see us and recognize us — and the more their LinkedIn inbox is going to be pinged by offers from others,” Siemiatkowski told CNBC.
He added that, in Europe, there’s “unfortunately a sentiment that you shouldn’t pay that much to really talented people,” especially when it comes to people working in the financial services industry.
“There is more of that sentiment than in the U.S., and that is unfortunately hurting competitiveness,” Klarna’s co-founder said. “If you get approached by Google, they will fix your visa. They will transfer you to the U.S. These issues that used to be there, they’re not there anymore.”
“The most talented pool is very mobile today,” he added, noting that its now easier for staff to work remotely from a region that’s outside a company’s physical office space.
Trump donor Norm Champ details how the Biden-Harris regulations have been hurting Americans’ retirement funds on ‘The Bottom Line.’
Tens of millions of private-sector workers lack access to a retirement savings plan through their employer, which experts at the AARP Public Policy Institute warn could pose a significant burden to future taxpayers.
The institute estimates that 57 million private sector workers in the U.S. – about half of the workforce – are not offered either a traditional pension or a retirement savings plan through their employer, a problem that has persisted for decades, according to David John, senior strategic policy adviser at AARP.
In April, an AARP survey showed that 20% of adults at least 50 years old had no retirement savings, and more than half were worried they would not have enough money to support them in retirement.
John said that individuals in their 50s or early 60s who are facing retirement without enough savings are in the midst of a crisis.
IRS INCREASES 401(K), OTHER RETIREMENT PLAN CONTRIBUTION LIMITS FOR 2025
For society as a whole, he said, “It’s not a crisis right now, but it’s pretty inevitable that it will be.”
“It’s a really significant problem, and it’s one that’s going to affect all of us, because if we’re not the ones with the small retirement savings to supplement Social Security, we’re going to be the ones who are paying the taxes to help the people who didn’t have that opportunity,” John said.
An AARP survey showed that 20% of adults at least 50 years old had no retirement savings. (Annette Riedl/picture alliance via Getty Images / Getty Images)
If many people lack adequate retirement savings, they will likely require more forms of public assistance – from nonprofit organizations or government programs. This could include support for health care needs, housing or other essential services.
To help, more than a dozen states have already set up or are in the process of implementing state-facilitated retirement savings plans for small businesses, according to John.
Small businesses are more likely not to provide retirement savings benefits to employees compared to larger corporations. Pew Charity Trusts cited Bureau of Labor Statistics data showing that 57% of private-sector firms with fewer than 100 workers offered a retirement benefit plan as of 2023. However, 86% of companies with at least 100 workers and about 91% of firms with at least 500 workers did.
For small businesses, their main focus is often on staying afloat, leaving little time or resources to handle such tasks. But these state programs, such as CalSavers, California’s retirement savings program for workers who do not have a way to save for retirement at work, are a way to help that does not have any cost to a small business.
More than a dozen states have already set up or are in the process of implementing state-facilitated retirement savings plans for small businesses. (iStock / iStock)
Greg McBride, chief financial analyst for Bankrate, told FOX Business that the bigger issue is that most workers don’t recognize that they can still contribute to a retirement account independently, without relying on their employer.
“Something lost on consumers is that lack of access to a retirement savings plan through your employer doesn’t mean that you can’t save for retirement on a tax-advantaged basis,” McBride said.
If someone or their spouse with whom they jointly file taxes with has an earned income, they are eligible to contribute to an Individual Retirement Account (IRA), which provides tax advantages for retirement savings.
It’s estimated that 57 million private sector workers in the U.S. are not offered either a traditional pension or a retirement savings plan through their employer. (iStock / iStock)
According to the IRS, there are several types of IRAs available, including a traditional IRA, a tax-advantaged personal savings plan where contributions may be tax-deductible, and a Roth IRA, a tax-advantaged personal savings plan where contributions are not deductible but qualified distributions may be tax-free.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
While McBride said the “lack of employee-sponsored retirement savings isn’t a barrier to saving for retirement,” he did acknowledge that it is harder. There is no employee match and there are lower contribution limits for IRAs compared to workplace-based plans, according to McBride.
Still, he doesn’t believe enough workers are taking advantage of these accounts.
Morgan Stanley finally turns bullish on U.S. stocks as it says the S&P 500 could jump as high as 7,400
Is a retirement savings crisis looming?
IRS reforms bring relief, but Trump win clouds future plans
Are American progressives making themselves sad?
U.S. Beneficial Ownership Information Registry Now Accepting Reports
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
-
Technology7 days agoAI Use Cases: Retail, Finance & Healthcare Solutions
-
Blog Post1 week agoThe Essential Practice of Bank and Credit Card Statement Reconciliation
-
Accounting2 days agoHow to Create an Effective Invoice Process for Small Businesses
-
Technology7 days agoThe Rise of Superapps: How AI is Powering the Next Generation of Mobile Apps
-
Personal Finance1 week agoHere’s why ETFs often have lower fees than mutual funds
-
Economics1 week agoPowell and the Fed won’t be able to avoid talking about Trump forever
-
Economics1 week agoDid sexism propel Donald Trump to power?
-
Economics4 days agoWholesale prices rose 0.2% in October, in line with expectations