Please indicate the number of employee shareholders (on a fully diluted basis) of your company, including top management.

  • Radia Guira

An employee shareholder is an employee who has agreed to have different employment rights, in return for being issued shares in the employer’s company. To be an employee shareholder, the following conditions must be met: the employee and employer agree that the employee will be an employee shareholder.

In the context of this question, we are trying to collect data about the number of employees in your company who own shares, including those in top management positions. When we refer to a ‘fully diluted basis’, we are referring to the total number of shares that would exist if all possible sources of conversion, such as convertible bonds, stock options, and warrants, are exercised.

To put it simply, the first part of the question relates to the number of employees who hold shares in your company. This includes not just regular employees, but those who have a major role in decision-making or hold top management positions. The second part refers to the term ‘fully diluted basis’. This means that it considers all the potential shares that would exist if all additional sources of conversion into equity such as stock options, convertible bonds, or other potential sources of dilution were exercised or converted.

As an example, your response to this question could state: “There are 100 employee shareholders in our company when considering holdings on a fully diluted basis, which includes 15 members of top management.”

Understanding Fully Diluted Shares

Before diving into the specifics of calculating your company’s number of employee shareholders, it’s crucial to understand what we mean by ‘on a fully diluted basis.’ Fully diluted shares represent the total number of shares that would be outstanding if all possible sources of conversion, such as stock options and convertible bonds, were exercised. This viewpoint provides a more accurate picture of a company’s equity structure and potential future equity, giving stakeholders a better understanding of their proportionate ownership in the company.

To get an in-depth explanation of fully diluted shares, you may find these resources helpful: Investopedia’s Fully Diluted Shares Definition and LegalVision’s Take on Fully Diluted Shares.

Identifying Employee Shareholders

Identifying all employee shareholders is the first step in calculating your company’s ESG score. This includes every individual from your top management team to the newest members of staff who hold or have rights to your company’s shares. To ensure accuracy, you’ll want to review your company’s stock option plan, any agreements for convertible instruments, and records of stock sales to employees.

Why is this important? Employee shareholders are a sign of company health and employee engagement. Companies that encourage employee ownership tend to have better governance practices and may benefit from a more motivated workforce. This positive aspect of governance can significantly impact your ESG score.

Mapping Out the Calculation

Having identified all potential shareholders, it’s now time to calculate the number of shares on a fully diluted basis. This will require careful consideration of all potential future shares that could be converted into common stock. You’ll need to account for every option, warrant, convertible bond, and any other securities that can be translated into common shares.

For a practical understanding of what ‘fully diluted’ means, consider checking out Martyn Eeles’s article on LinkedIn: What Does Fully Diluted Mean?

Once you have collected all the necessary data, it’s a matter of doing the math. Add up all the shares currently owned by employees, including those held by top management, and then add any shares that employees could own if they exercised all their options or other convertibles. This total is your fully diluted employee shareholder count.

When you’ve determined the number and ratio of employee shareholders, you’ll want to document your findings clearly, which will be essential when completing your ESG questionnaire. By maintaining transparency in your equity structure, you not only comply with reporting standards but also demonstrate good governance, a key element of the ESG criteria.