Final answer:
This scenario exemplifies how a pay raise might work and the broader implications of changing payment structure to equity compensation and its potential impact on the company's governance and shareholder value.
Step-by-step explanation:
The subject in question is in the realm of business and specifically deals with a company's compensation structure and its impact on capital structure. When an employee is paid in shares instead of cash, it doesn't just affect how they are compensated; it also affects the company's ownership distribution and can have implications on its overall financial structure.
For instance, if you're earning $10 per hour and receive a 20% raise, your new wage would be $12 per hour. In the context of the given scenario, if a firm decides to offer 150% of the current wage in new shares, it is essentially offering a form of equity compensation. This can incentivize employees as shareholders have a vested interest in the firm's success.
However, compensating with shares also dilutes the current shareholders' ownership. If these new shares are added without raising new capital, they could potentially decrease the value of existing shares. Additionally, it may lead to changes in the governance and control of the firm, which are crucial elements to consider when altering the payment structure.