Question

Abby Pet Products Inc. Jim and Ann Stuart founded a pet products company eight years ago. The firm sells to net such items as pet toys, collars, travel kennels, food dishes, and related items. They manud some of the items and also buy from foreign suppliers. They have 12 manufacturers tatives who cover the United States and part of Canada. The firm has grown rapidly. There 43 employees, many of whom have been with the firm from the beginning. represen are Ann believes that in training new employees and holding periodic meetings with current employees, the company should give more financial information so that employees will hava better understanding of the firm's financial situation. She also thinks that employee ownership in the firm should be considered. She and Jim hold all of the common stock of the firm. re about publishing the firm's financial information or employee stock owner ship. The company has a full-time bookkeeper who does all of the financial record kee outside accounting firm assists with tax preparation. Jim feels that it's too easy for financial in- formation to be misunderstood or gossiped about and that such information could even get in the hands of competitors, customers, and suppliers. This could hurt the company's competitive position, he feels. 1. What are the advantages and disadvantages of sharing financial information with employes? 2. How could employee stock ownership be an advantage to the firm? 3. Is offering employees stock ownership and sharing financial information a positive motiva tion for employees? Or is the risk of gossip too great for this idea to work?

Answer 1

1. The organization should publish the financial statements in the public domain or not is depend on the how the management think about the disclosing effect. If the management is of the attitude that it will lead to gossips among employees and losing out the company’s financials to competitors which will affect the company business, then it would be better not to publish financial statements. The advantages of publishing the financials in public domain :

i) The shareholders and the prospective investors got the information about the company growth and stability status.

ii) The employees got enthusiastic to know the results of their hard work towards bringing-in the company high sales and profits.

The disadvantages of publishing the financials in public domain:

a) The competitors could able to know the advantageous points of the company and they could provide higher competition to the company through improving their costs, sales price and quality of products.

b) The employees would try to analysis the financials and have gossips about comparison of growth of their salaries and shareholder’s wealth growth.

c) The suppliers and customers may indulge in rate correct and payment period debates with the company management on having financial informations.

2. The employee stock ownership would always an advantage to the firm because

1) It is a supplementary to salaries.

2) It gives an impression of having an ownership in the company.

3) Boost the performance of the employees being having advantage of profit-sharing.

3. Yes, it is always advantageous to share financial information and ownership with the employees because they feel recognized on having ownership-sharing and information-sharing attitude of the management and have boost their performance. The employees having common-stock of the company are having dual source of income ie. salary and dividend.