In layman language, equity stake refers to the stake of an individual or an institution in the equity of an organization. Shareholders having a significant stake enjoy certain rights and privileges over shareholders having lower stake. Equity stake is generally expressed in terms of percentage.
Benefits for Shareholders with higher Equity Stake
Shareholders having a considerably high equity stake in a company are entitled to certain benefits like control and participation in certain decision making activities. The entitlements are not uniform across the industry. Different organizations offer different rights. These rights can even extend up to having a say in mergers, take-over, etc.
Making Employees part of Company Growth
Some companies even offer their employees equity stakes as a component of their pay package. This enables the employees to share a part of the profit their organization earns. Such companies believe that by doing so, they will be able to attract as well as retain good quality and performance oriented employees.
This option has also worked well in organizations where trade union is very strong. With workers sharing a part of the profit, the interests of the management as well as the workers are aligned in the direction of productivity. But it should be noted that along with the equity stake, some rights are also given to the employees and they may misuse it in the process of decision making.
