How Should We Define Criteria for Making Employees Stakeholders? Seeking Your Input

Dear colleagues, please help in making a policy to designate an employee as a stakeholder. One of the eligibility criteria should be having worked for a minimum of 3 years.

Additional Criteria for Stakeholder Designation

Additionally, I would suggest considering other criteria such as performance evaluations, demonstration of company values, and contributions to team projects. These factors can help identify employees who are truly invested in the company's success and are aligned with its goals.

Your input and suggestions on this matter are highly appreciated.

Thank you.

Dear Jay,

Definition of a stakeholder

The definition of a stakeholder is "a person or organization with an interest or concern in something."

As per the definition, an employee is already a stakeholder. He/she is expected to show interest or concern in the well-being of the company. If the employee does not show concern, then the company will not grow, which, in turn, would affect his/her personal growth as well.

Theoretical vs. real stakeholders

However, this is a theoretical aspect of being a stakeholder. In the real sense, the real stakeholders are shareholders only. They make financial investments, and investors are always interested in accruing multiple returns on their investment. In contrast, an employee does not make any kind of investment. For the knowledge and skills he/she uses to generate output, he/she receives returns immediately in the form of a salary. Therefore, compared with the shareholders, an employee's risks are far lesser.

Note that the company does share profits with its employees. By distributing "allocable surplus," which in normal language we call a "bonus," to the employees, is the company not making them stakeholders?

Making employees stakeholders

If you wish to make employees stakeholders as well, then you need to distribute a share of the company to the employees. This option is called an "Employee Stock Option Plan" (ESOP). Is your company ready to do that? However, this setup works best in a public limited company rather than a private limited company. A couple of years ago, the maximum allowed shareholders in a private limited company were only 200. What if your company has more than 200 employees?

I recommend you provide more details about your company, the number of employees, and why there was a need felt to make the employees "stakeholders." It is essential to be clear about the benefits the company will have and what benefits the employees will have if they become stakeholders.

Thanks,

Dinesh Divekar