The move, worth $197 million as of July 28, is to "reinvest directly in our people," Dorsey, who was named as the company's permanent CEO earlier this month, said in a tweet on Thursday.
???? I'm giving ~1/3rd of my Twitter stock (exactly 1% of the company) to our employee equity pool to reinvest directly in our people.- Jack (@jack) October 23, 2015
Twitter did not comment further on the move.
The unusual move comes as Dorsey works to rebuild employee morale and confidence at Twitter after a spate of high-level departures over the past several months.
He announced last week that the company would lay off 336 employees, about 8 per cent of its workforce, in an attempt to streamline Twitter's products and teams.
Dorsey, who took over as interim CEO in July after Dick Costolo resigned, also tweeted "I'd rather have a smaller part of something big than a bigger part of something small."
As for me: I'd rather have a smaller part of something big than a bigger part of something small. I'm confident we can make Twitter big! ??- Jack (@jack) October 23, 2015
His appointment raised concerns among investors about whether he could run both Twitter and mobile payments company Square Inc, which he co-founded.
Dorsey disclosed in Square's IPO filing earlier this month that he plans to donate 40 million shares, or 10 per cent of the company, to a charity foundation he started that invests in artists, musicians and local businesses. He has already given back over 15 million shares to both Square and the charity foundation, he said.
Last week, former Microsoft Corp Chief Executive Steve Ballmer said he has taken a 4 per cent stake in Twitter, making him the third-biggest individual shareholder in the social media company. Ballmer now owns more of Twitter than Dorsey, who has a 3.2 per cent stake, according to Thomson Reuters data.
Dorsey, who is in his second stint as chief executive at Twitter, has rolled out a "buy now" button that allows users to make purchases and a feature that shows users the site's best tweets and content as curated by a Twitter team.