Author: Emanuele Crisafi
Publication date: 15.08.202
"How is it possible to align the shareholders’ interests with the employees’ interests?" This is the first question that any listed company asks when they issue shares that will be bought by investors on the stock market. In fact, this question is fundamental because the typical goal of a company is to increase the value of the shares and of the company in general.
HR management and its importance
The role of HR management is not only to assign tasks and evaluate results but also to increase engagement and motivation. Consequently, the productivity of employees rises, especially managers and CEOs’. All of this is possible through the use of specific Reward Programs. These aim to recompense employees for tasks completed and their commitment.
In particular, when we talk about such programs, we can refer to a vast typology of rewards:
● salary increase
● company benefits
● stock options
Stock options: what are they?
The stock option is the right to purchase a number of shares that the company recognizes in the hands of its employees and/or managers. This scheme was designed to align the interests of shareholders with the interests of employees, particularly managers. This happens because in companies there is a problem named "agency problem".
Difference Between Shareholders and The Manager
Actually, there is a separation between the shareholders and the manager. The first ones are the owners of the company; the second ones make important decisions for the company. Both have conflicting interests: the owners/shareholders are interested in maximizing profit.
The managers are not interested in maximizing profits because they receive just a salary regardless of the trend of the company. For this reason, managers could adopt opportunistic behaviors, for example taking bad decisions or wrong strategies without any preoccupation with the sort of the company.
Stock options: how can they solve the agency problem?
The use of stock options could be a solution to the agency problem. If the managers have the possibility to purchase shares of the company in the future, maybe they will be more interested in the sort of company. They will make the best decision in order to increase the company's performance because they will receive a part of these generated profits. In this way, the shareholders’ interests and the managers’ interests can be aligned.