As someone who is keen on getting your services appropriately compensated, looking out for things that could serve as constraints to timely and effective compensation is only necessary.
However, in order to know whether or not equity market value has the capacity to affect salaries and wages, let’s define what equity market value means first. Equity market value is defined as the total value of a company’s outstanding shares traded on the stock market.
Now, imagine your organisation is XYZ, you can therefore take equity market value to be XYZ’s outstanding shares that are traded on the stock market. Equity market value is also regarded as market capitalization.
So, when you hear people at the exchange floor use the term ‘’market capitalization’’, know that they are also referring to equity market value. A way of familiarizing yourself with this term is by taking advantage of the weekly market report issued by the Nigeria Exchange Group (NGX).
What market capitalization or equity market value simply means is a representation of the market’s perception of the company’s worth, which is calculated by multiplying the total number of outstanding shares by the current market price per share.
For instance, if XYZ has 1 million outstanding shares and the current market price is N100 per share, its equity market value would be N100 million (N100 x 1,000,000).
Because this value fluctuates regularly due to changes in stock prices, you may be concerned as an employee with this question: Does the equity market value affect salaries and wages?
Does the Equity Market Value Affect Salaries and Wages?
The answer to this is yes. Yes, equity market value can affect salaries and wages. However, it is important to note that the effect of market capitalization on salaries and wages occur indirectly, not in a direct way as you would expect.
This happens as a result of how equity market value can influence a company’s financial performance, investor confidence, as well as the ability to attract top talent. If the company was XYZ, for instance, it would affect its financial performance and other activities we just identified.
An equity market value that is on the decline may find it difficult to meet its financial obligations because of these issues: decreased investor confidence; reduced bonuses and stock options; talent retention challenges; limit funding for employee compensation; reduced revenue and profitability.
On the other hand, when equity market value or market capitalization increases, salaries and wages are affected positively. The increase in equity market value represents: a growth in investors’ confidence; bonus and stock options packages generously distributed; attracting top talents becomes easier; increase in revenue and profit, leading to higher salaries and wages; availability of employees’ compensation, as well as maintaining competitiveness in the market.
Understanding the role equity market value plays is crucial not only for employees but stakeholders as well.
The knowledge retained on market capitalization helps investors, analysts, and stakeholders assess a company’s size and growth, including the value it holds within the industry.
