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While discussing the role of company employees in the stakeholder view, the kaplan book reads:
Company employees – obviously, many trade unionists would like to see their members as the residual beneficiaries of any surplus the company creates.
1) Why are they calling employees “RESIDUAL beneficiaries” instead of simply beneficiaries?
Certainly, there is no measurement problem: returns = wages or salaries and bonuses. However, maximizing the return to employees does assume that risk finance can be raised purely on the basis of satisficing i.e. providing no more than an adequate return to shareholders.
2) What does this line mean : However, maximizing the return to employees does assume that risk finance can be raised purely on the basis of satisficing i.e. providing no more than an adequate return to shareholders.
The term “residual beneficiaries” is used to describe employees in the context of the stakeholder view because they are considered to be the beneficiaries of any surplus or remaining profits that the company generates after meeting the needs of other stakeholders.
This term emphasises that employees receive their share of the company’s profits after other stakeholders, such as creditors and shareholders, have been compensated. It highlights the idea that employees are entitled to a portion of the company’s success, but their benefits are contingent upon the availability of surplus funds.
“maximizing the return to employees does assume that risk finance can be raised purely on the basis of satisficing i.e. providing no more than an adequate return to shareholders.”
This line means that if a company aims to maximise the return to its employees, it assumes that it can raise the necessary funds for investment and operations by providing shareholders with no more than an adequate or satisfactory return.
In other words, the company meets the minimum expectations of shareholders in terms of financial returns, rather than striving to maximise their wealth. By doing so, the company can allocate a larger portion of its profits towards employee compensation and benefits. This approach assumes that shareholders will be willing to accept a lower return on their investment in exchange for the company’s focus on employee well-being.
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