Why Employees Receive Common Stock

When employees are granted stock, or more often stock options, they are entitled to shares of common stock. Common stock offers employees access to the economic benefits of ownership, aligning incentives to focus on increasing the value of the company.

It’s worth noting that these option plans do not provide employees with preferred stock for several key reasons.

First, preferred stock is designed to offer its holders unique control over specific aspects of corporate decisions (e.g., sale of the company, compensation of senior executives, etc.). These aren’t decisions that employees are in a position to make as they aren’t always privy to all of the information required to make these decisions.

Second, investors seek preferred stock because it enables them to make the aforementioned decisions. When those decisions need to be made a vote is taken amongst the holders of preferred stock. By giving employees preferred stock investors would own a smaller percentage of the total pool of preferred stock, reducing their ability to control these votes. As a result, the distribution of preferred stock would prevent investors from providing the company with capital.

In sum, employees are granted common stock because it is designed to offer them the incentive to exclusively focus on expanding the value of the company.

Source: http://mpd.me/why-employees-receive-common-stock/