What Two Kinds of Changes in the Capital Stock Can Improve Labor Productivity?

by David Ingram, studioD

Labor productivity is the rate at which employees produce output up to quality standards. Productivity can be measured in several ways, including the number of units produced in manufacturing settings and the number of new clients gained in sales environments. The term capital stock can have two meanings. It can refer to the number of shares authorized for sale in a corporation's charter, or it can refer to preferred and common stock, whether authorized, outstanding, or held as treasury stock.

Capital Stock Basics

Preferred stock carries a wider range of rights than common stock, including higher precedence when distributing liquidated assets. They also have a more reliable stream of dividends. Common stock can be the better choice for short-term traders, and is often the choice for employee stock distributions. Treasury stock consists of both common and preferred shares that a company has bought back, but has not retired.

Common-Stock Increase

The first change in capital stock with potential effects on productivity is an increase in the number of common shares authorized for sale. Corporations stipulate a set number of common shares authorized for sale when drafting the corporate charter. However, additional shares can be authorized by a vote of the board and a refiling of the charter. An increase in common stock can be a sign that company is about to offer additional stock options to employees, which can tie employees' productivity directly to their financial compensation. In these cases, employees can be motivated to increase their productivity to boost the value of their shares.

Common and Preferred

The second change in capital stock potentially resulting in greater productivity is an simultaneous increase in common and preferred shares authorized for sale. An increase in both types shares can be a sign that a company plans to expand by selling a new round of stock to raise debt-free capital. Company expansion can lead to new internal advancement opportunities, inspiring employees to work more productively. Employees who receive profit-sharing bonuses can see this change in capital stock as an opportunity to boost profit-sharing payouts. This can also inspire them to do their part to increase company success.

Other Influences

From the perspective of the second, more general definition of capital stock, there are several changes that can influence productivity. Increases or decreases in stock prices can encourage or discourage employees with company stock holdings, resulting in greater or less commitment to company goals. Stock buybacks can artificially boost stock prices in the market, which can encourage additional investment and increase stock prices for the long term. This can result in greater employee commitment and higher productivity.

About the Author

David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.

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