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The Uber and Lyft logos are seen on a vehicle in New York. Lyft is offering its drivers a cash bonus with the option to in...

Why Lyft’s offer of cash and stock may not benefit most drivers

Some of the independent contractors who drive for rideshare giant Lyft can expect a cash bonus with the option of investing it in company stock before it begins public trading next month, according to financial disclosure documents released Friday.

Competitor Uber reportedly plans to offer a similar deal to its drivers when it goes public later this year but has not released details.

Neither Lyft nor Uber have said yet what their baseline share prices — known as the initial public offering — will be, so it’s unclear how much the driver bonuses would be worth in company stock. But drivers would be able to get in at the ground level and purchase however many shares their bonuses can buy, with the hope that the stock price improves once it begins trading publicly.

The bonus could be welcome news for some rideshare drivers, who have historically worked for low pay, receive few benefits and must spend much of their own money on gasoline and car maintenance. But critics say the way the bonuses will be distributed will leave most drivers out entirely.

For drivers who are in good standing and had completed between 10,000 and 20,000 rides by Feb. 25, 2019, Lyft will offer a bonus of $1,000.

Drivers who completed at least 20,000 rides by that date will get a bonus of $10,000. Drivers who have served on the Driver Advisory Council, which provides driver feedback to the company, would also receive $1,000.

Lyft said the drivers can use the bonus to purchase the company’s shares, but “are under no obligation to do so.”

The benefits of a stock option

Companies that are going public often offer workers the option to buy some of their shares at the price listed in their initial public offering.

The practice is seen as a reward for their hard work and as a way to build loyalty.

In the case of ride-sharing companies, it could encourage drivers to spend more time driving for a single company instead of splitting their time between Uber, Lyft and other apps because they have “skin in the game” said Keith Chen, who was the head of economic research for Uber from 2014 to 2016 and is now an associate professor of economics at UCLA.

Issuing stock also generally doesn’t cost companies money like cash bonuses do.

Getting the option to buy stock at the IPO price provides workers an advantage over other investors because about 75 percent of companies’ shares go up immediately after they can be publicly traded. Buying the stock early is hard to do unless you are a top client at one of the big banks because there are a limited number of shares available.

Buying Lyft stock could also be a boon longer-term, especially for workers in the gig economy who are contractors and do not have a company-sponsored retirement savings program like many traditional employees.

This one-time cash bonus “offers the opportunity to save and invest the money when people are used to spending their weekly income,” said Jay Ritter, a finance professor at the University of Florida.

But Ritter cautioned that drivers who choose the stock option will still be taking a risk, especially if they do not have diversified investments elsewhere.

How drivers are reacting

With no retirement benefits or other company savings plans, advocates for drivers have long called for the opportunity to have a stake in the ride-sharing companies.

But Lyft’s 10,000-ride threshold means only a handful of drivers will be eligible for the bonus.

“Drivers deserve these shares. They helped build trust in a completely new model of transportation. There would be no Uber or Lyft without the drivers,” said Mora Muntz, a spokesperson for the Independent Drivers Guild, a group that represents 70,000 ride-sharing drivers in New York City.

Most drivers work for both Lyft and Uber, switching off depending on which app gives them a ride first. That makes it more difficult to get 10,000 rides on a single app.

Muntz estimates it would take the average, full-time driver more than five years to do so. She said it would take even longer for drivers of luxury cars because they drive fewer trips per day at more expensive rates.

That’s why Muntz said Lyft should take into account other factors, such as how long a driver has been working for the company and how much money they are bringing in, when deciding which drivers are eligible for the bonus.

Michael Reich, an economics professor at the University of Berkeley, noted that Uber and Lyft are currently in a price war.

“They are both trying to gain market share as they go into IPO period and generally the driver pay goes down when prices go down,” Reich said.

Exactly how much drivers have been making in recent years is unclear because Uber and Lyft do not release data on drivers’ earnings. Uber said in 2015 that its drivers make an average of more than $19 per hour, but other surveys have found pay is much lower once expenses are taken into account.