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On China's state-owned enterprises listed company equity incentive

Author: YaoYuan From: www.yourpaper.net Posted: 2009-12-12 01:02:19 Read:
[Abstract] Equity Incentive long-prevalent in foreign listed companies, China's state-owned listed companies in recent years is also actively exploring the implementation. This article describes the role of incentive stock options, outlined the history and current situation of China's state-owned enterprises, equity incentive system, and China's state-controlled listed companies equity incentive system loopholes and deficiencies suggestions.
[Keywords] equity incentive state-owned enterprises listed companies

The equity incentive origin in the United States in the late 1970s, has been developing rapidly in the 1980s and 1990s. Its background, mainly focus on resolving the conflict of interest between shareholders and managers, and the establishment of long-term incentives for operators.

First, the role of the equity incentive system

Equity incentive is a given by operators to obtain the form of company shares certain business and economic rights, and make them to the identity of the shareholders to participate in corporate decision-making, and share the profits, risk, thereby diligence for long-term development of the company's services. Equity incentives, including stock options, employee stock ownership plan and a management buyout (MBO). Implementation of equity incentive system can play the role of the following aspects:
(A) the goal of reunification, fundamentally improve corporate governance
Implementation of equity incentive main purpose is to establish long-term incentives, the incentive objects are mainly concentrated in the company's executives, the core technology R & D personnel and a special contribution to the staff. By granting them stock options, tied to their personal interests and the interests of the company, was awarded only try to enhance the company's business performance in order to increase personal wealth. As a result, not only to maintain a consistent on the outside shareholders of the Company and the Company's internal interests of the operators, and naturally reduce agency costs, radically improve corporate governance.
(B) to achieve low-cost, performance-linked, and reduce the risk of moral hazard
Equity incentives to the operators to high-income obtained through normal channels, and enhance the sense of security of the holder, reducing the operator's defensiveness, as long as the hard work, performance standards, you can get a high income, and thus reduce the executives of the moral hazard and the cost of expenditure must be in order to prevent moral hazard.
(C) optimize the shareholding structure, stable management
The equity incentive expand the investment managers of the company, you can optimize the shareholding structure of the company to a certain extent. Open shareholding structure and it helps attract the best management elite, additional restrictions on the exercise period, an increase of the cost of the manager's departure, thus contributing to the stability of the management.

Second, China's state-owned enterprises, the historical equity incentive

Early 1990s, along with the deepening of the reform of state-owned enterprises, China began to gradually introduce equity incentive system. As early as August 1999, the fifth session of the Fourth Plenary Session of the CPC Central Committee, the Central Committee proposed the implementation of the business and technical backbone of the shares, including options, including incentive: "to allow and encourage the technology, management and other production factors participate in the distribution of income part of the high-tech enterprises in the pilot, from the part of the state-owned ʲֵ in recent years to come up with a certain percentage of shares reward the contribution to the employees, especially scientific and technical personnel and management personnel. "according to this line of thought, association, etc. nascent high Technology companies lead in implementing the management shareholding (MBO).
But the real face the equity incentive reform of pressure, a few to several overseas listed international companies. In 2000, Sinopec, PetroChina, China Unicom set off a climax in the overseas listing of large state-owned enterprises to be successfully listed must act in accordance with the international rules: to give executives' equity incentives. If executives are not tied together by way of equity and other long-term interests of the Company, foreign investors have no confidence in corporate governance.
In the capital markets, to 2006, the split share structure reform in China is basically completed, the achievements of the world's attention. Since 2007, China's securities market has entered a post-tradable Share Reform, which provide a better market environment for the implementation of equity incentive. The SFC issued by state holding listed companies (domestic) for implementation of equity incentive pilot scheme "provisions of the completion of the equity division reform of state-owned listed companies, and the implementation of equity incentive, establish and improve the incentive and restraint mechanisms. According to incomplete statistics, there are dozens of state-owned listed companies issued equity incentive program. It can be expected, the price performance-based stock options, annual salary will be based on experience, position, financial performance-based bonuses, retirement benefits based on length of service, together with the remuneration system of the listed companies in China four major factor.

Third, the implementation of equity incentive problems that need attention

Everything has two sides, the equity incentive regime is no exception. It is like a double-edged sword, use good companies will bring huge benefits and development, but if used improperly, it will have a devastating impact on the enterprise, foreign Oracle corporate scandals, Enron equity incentives are closely linked. China's state-controlled listed companies in the implementation of equity incentive system involves the sensitive issue of the loss of state assets, as well as social equity, and therefore need to consider carefully.
Currently, SASAC promulgated the "State Holding Listed Companies (Domestic) implementation of equity incentive pilot scheme," better able to solve some of the problems of equity incentive it at this stage of the construction of a modern enterprise system of China's state-owned listed companies will have a positive effect. Equity incentives to their own inadequacies still exist in China, there are some issues remain to be resolved, in equity incentive after the introduction of the new regulations, how to prevent loopholes in the equity incentive, which is a more noteworthy reality. Specifically the following points should be noted:
(A) to prevent senior management to exercise control over the arbitrage
Due to the presence of control benefits, corporate executives strata income does not depend entirely on the remuneration arrangements of the system and the residual claim, equity incentives may not be valid. Control benefits usually divided into two types: one is sharing revenue, operating income, which is the benefits of the business value of upgrading to all stakeholders; another private income, non-operating income, it by the controllability status decision is controlling groups revenue exclusive. Once business executives class by virtue of control over access to the private non-operating income, and the income is greater than the available equity gains, even if clear property rights, property rights incentive mechanism is also difficult to take effect.
In Western countries, the legal system is relatively sound, so control of the arbitrage but the means are relatively hidden, mainly for high pay and job consumption, a relatively limited impact on company performance. Of state-owned enterprises, the owner of the virtual bit external governance is weak, unable to effective supervision and control over the situation, the control over the proliferation of arbitrage, the control right arbitrage that exists in reality is also the root of China's state-owned enterprises MBO management buyout failed.
Control of the arbitrage is rooted in the natural defects of modern corporate governance, is a widespread phenomenon. Therefore, to prevent arbitrage more dependent on corporate external governance mechanisms, such as the legal system, property rights trading system, information disclosure system, the state-owned assets management system, these systems are still weak in the reform of China's state-owned enterprises and urgent sound. We must be fully considered in the design of the equity incentive plan to make the incentive benefits are greater than the control of the arbitrage income, increased supervision, so as to have a positive role in the development of enterprises.
(B) the senior management of state-owned enterprises is the premise of the appointment system for equity incentive inconsistent
Western countries share incentive premise is to have the best manager market, executives from the company's manager market performance competitive selection out of professional managers pursue economic incentives, rather than the other incentives goals. At present, most of the senior management of China's state-owned enterprises is appointed by the higher authorities of the far form based on market supply and demand for the mature market of professional managers, such differences will bring equity incentive effect of the deviation.
First, the state-owned enterprise executives appointed by the government, and administrative and government officials enjoy the same treatment, their income and enjoy the treatment is determined by its administrative level, which will lead to the listed company management incentive target shift economic goals and not a listed company management is the most important incentive goals, political goals - posts to become the most important goal. Secondly, as a listed company management personnel of the government officials, the wage income is just part of their total income and enjoy the treatment, gray income and benefits accounted for the majority of their total income, therefore, wages, and capital gains generated by the shares held by economic incentives, the effect is not as pronounced as in Western countries, which in turn lead to reduce the incentive effects of the economic goals.
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