Compared with western countries, what are the advantages and disadvantages of China's equity incentives?

There are roughly ten modes of equity incentive, namely, stock option, futures stock, restricted stock (right), fictitious stock (right), stock (right) appreciation, book value appreciation, performance stock, deferred payment, MBO and employee stock ownership plan, etc. There are six commonly used modes, namely, stock option, futures stock, restricted stock (right) and fictitious stock (right).

xiaobian has selected six commonly used equity incentive models and introduced their advantages and disadvantages:

(1) Stock option

Stock option model is the most classic and widely used equity incentive model in the world. It is a derivative financial instrument based on futures. In essence, the option is to separate the rights and obligations in the financial field, so that the transferee of the right can exercise the right whether to trade or not within the specified time, that is, he can choose to exercise the right or give up the right, but the obligor (listed company) must perform it.

the main point is that, with the approval of the shareholders' meeting, the company will reserve the stock options for the issued and unlisted common shares as part of the "package" remuneration, and will conditionally grant or reward them to the company's senior management and technical backbone at a predetermined option price. The holders of stock options can make choices such as exercising and cashing within a specified period. The design and implementation of the stock option model requires that the company must be a public listed company, have a reasonable and legal stock source that can be used to implement stock options, and have a capital market carrier whose stock price can basically reflect the intrinsic value of the stock, with relatively standardized operation and good order. Lenovo Group and Founder Technology, which have successfully listed in Hong Kong, have implemented the stock option incentive model.

Advantages:

1. It has a long-term incentive effect;

2. It can reduce the principal-agent cost;

3. It can improve the company's performance;

4, can increase investor confidence.

Disadvantages:

1. Managers use illegal means to raise the stock price for their own benefit;

2. The wage gap between managers and employees has further widened.

(II) Futures shares

Futures shares are an equity incentive tool for incentive objects (including management and core teams) to own shares of enterprises through partial down payment and installment repayment. It can effectively solve the problem of insufficient cash for managers to buy shares at one time. Usually, the enterprise lends money to the incentive object as its share investment, and the incentive object has the ownership, voting and dividend rights to the shares. But the ownership is virtual, and it can only be actually owned after paying off the loan for purchasing futures shares. The voting right and dividend right are real, but the dividend can't be taken away until the full share price is repaid.

in order to turn futures shares into real shares (shares registered by the industrial and commercial bureau or stocks registered by the stock registration department), the incentive object must manage the enterprise well and make it have dividends available for distribution. If the enterprise is not well managed, not only can the futures shares not become real shares, but the invested principal may not be recovered. Compared with stock options, futures stocks are more binding on the incentive objects.

Advantages:

1. Stock appreciation is closely related to enterprise appreciation. Because the value of the stock held by the incentive object is directly related to the assets and operating benefits of the enterprise, this urges the incentive object to pay more attention to the long-term development and long-term benefits of the enterprise. However, stock returns are difficult to cash in in a short period of time, thus effectively avoiding the short-term behavior of the incentive object.

2. Effectively solve the problem of insufficient funds when the incentive object buys stocks. Futures stocks can be purchased through personal existing funds, loans, annual salary income, dividends, etc., so as to realize the original intention of encouraging them to work harder now with shares and income that can be obtained in the future.

3. Prevent the internal impact of the widening income gap. The income of options is obtained gradually and dispersedly, which can be cashed at the expiration of the term or several years after the expiration of the term, or it can be cashed at a certain rate every year at a constant rate or at an accelerated rate. To some extent, this avoids the problem that the incentive object becomes rich overnight, which leads to the excessive gap between the rich and the poor among internal employees, and is conducive to the internal stability of the enterprise.

Disadvantages:

The stock income of the incentive object is difficult to cash in in a short time, and it bears the same risks as the existing shareholders.

(3) restricted stock (right)

Restricted stock refers to a certain number of shares of the company granted by a listed company to the incentive object according to predetermined conditions, and the incentive object can only sell the restricted stock and benefit from it if its working years or performance targets meet the conditions stipulated in the equity incentive plan.

The company grants a certain number of shares to the incentive object free of charge or at a nominal fee, but at the same time it will restrict the rights of such shares. That is, the incentive object is not allowed to dispose of the stock at will, and only after the specified service period or the completion of specific performance targets can the restricted stock be sold and benefit from it. Otherwise, the company has the right to take back the free restricted shares or buy them back at the price when the incentive object buys them. However, in China's Measures for the Administration of Equity Incentives of Listed Companies (for Trial Implementation), it is clearly stipulated that restricted shares should stipulate the performance conditions of the shares awarded to the incentive object, which means that the design of the acquisition conditions can only be limited to the relevant financial data and indicators of the listed company.

if it is used in a non-listed company, it is called "restricted shares". The company adopts restricted stock muscle in order to motivate the core team to devote more time and energy to one or some long-term strategic goals.

Advantages:

1. The restrictive condition for retaining key talents is mainly a long service period, which is conducive to motivating the core team to devote more time and energy to one or some long-term strategic goals;

2. Generally, the incentive object does not need to pay cash purchase or only pays a part symbolically.

Disadvantages:

1. It is difficult to scientifically determine the performance target or stock price;

2. The cash flow of enterprises is under great pressure.

(4) virtual stocks (rights)

Phantom Stocks. Virtual stock model refers to a kind of "virtual" stock granted by the company to the incentive object, which is not the real stock of the company, but the incentive object can enjoy a certain amount of dividend rights and stock price appreciation income accordingly. If the company's performance target is achieved, the grantee can enjoy a certain amount of dividends, but without ownership and voting rights, it cannot be transferred or sold, and it will automatically become invalid when leaving the company. Under the condition that the virtual stock holders achieve the established goal, when the company pays the holders the income, it can pay cash, equivalent stocks, or a combination of equivalent stocks and cash. Virtual stock separates the ownership and income right of shares, and the holder only has the dividend right and value-added income right of shares, but has no ownership and voting right. Of course, granting virtual stocks does not need to be registered with the industrial and commercial department or the securities trading department, and it is convenient to operate without changing the company's articles of association. However, because these methods do not involve the granting of ownership of the company's shares in essence, they are only deferred payment of bonuses, and the short-term incentive effect is good, but the long-term incentive effect is not obvious.

Virtual equity incentive mainly has the following characteristics:

First, virtualization in the form of equity. Virtual equity is different from corporate equity in the general sense. In order to motivate the core employees well, the company distributes a certain number of virtual shares to the core employees of the company for free, and its holders can enjoy the distribution of the after-tax profits of the company in proportion to the number of virtual shares.

second, the incompleteness of shareholders' rights and interests. The holder of virtual equity can only enjoy the dividend income right, that is, according to the number of virtual equity held, he can enjoy the right to distribute the after-tax profits of the company in proportion, but can't enjoy the rights and interests of ordinary shareholders (such as voting rights and distribution rights, etc.), so the holder of virtual equity will pay more attention to the business conditions and profits of the company.

third, unlike buying real equity or stocks, virtual equity is given away by the company for free or given to specific employees in the form of rewards, without employees' contribution.

The difference between virtual stock and stock option:

(1) Compared with stock option, virtual stock is not actually a subscription to the company's stock, but actually a voucher or right to obtain future dividends of the enterprise.

(2) In the incentive mode of virtual stock, the income of its holder is cash or equivalent stock; Under the condition that enterprises implement stock options, enterprises do not have to pay cash, but individuals have to pay cash to obtain stocks when exercising their rights.

(3) Different reward risks. As long as the enterprise is in normal profit conditions, the holders of virtual stocks can get some income; Only when the stock option is exercised, the stock price is higher than the exercise price, and the holder can get the benefit from the difference between the stock market price and the exercise price.

Advantages:

1. In essence, it is a kind of certificate that enjoys the dividend right of an enterprise, and it no longer enjoys other rights. Therefore, the issuance of virtual shares does not affect the company's total capital and share capital structure;

2. Virtual stock has an intrinsic incentive function. The holders of virtual stocks manage the enterprise well through their own efforts, so that the enterprise can make profits continuously, and then obtain more dividend income. The better the company's performance, the more its income; At the same time, the virtual stock incentive model can also avoid the impact of the abnormal decline of the company's stock price on the income of virtual stock holders due to uncertain factors in the stock market.

3. Virtual stock is easy to operate, as long as an internal agreement is drawn up, it will not affect the ownership structure, and there is no need to consider the source of incentive stock.

Disadvantages:

The incentive object may pay too much attention to the short-term interests of the enterprise by considering dividends and reducing or even not implementing the accumulation of enterprise capital accumulation fund. In addition, under this mode, companies have a strong willingness to pay dividends, which leads to greater pressure on cash payment.

(V) Stock (rights) appreciation rights

Stock Appreciation Rights (abbreviated as SARs) refers to the right that the company grants the incentive object to obtain the benefits brought by the price increase of a specified number of stocks (rights) in a certain period and under certain conditions. The object of equity incentive does not actually own the stock, nor does it have the right to vote, share option and dividend. stock appreciation rights cannot be transferred and used for guarantee and debt repayment. The incentive object does not have to pay cash for the exercise, but gets cash or equivalent company shares after the exercise. The incentive object does not need to actually buy or sell stocks, but only obtains the stock appreciation rights by simulating stock options. For example, on January 1, 212, Company A awarded stock appreciation rights of 6, yuan to Zhang San, the deputy general manager of the company, with a share value of 2 yuan. Due to the effective equity incentive, the company worked hard in Qi Xin to accelerate its development. On December 31, 214, the share value of Company A became 5 yuan, that is, the share value increased by 3 yuan (5 yuan -3 yuan), and the stock (right) acquired by Company A Zhang San on December 31, 214.

the difference between stock appreciation rights and stock option

1. The choice of incentive object is different. The incentive object of stock option is the stock of the enterprise, and the incentive object can obtain the complete shareholder's rights and interests and become a registered shareholder after exercising the right. Stock appreciation rights is a virtual equity incentive tool. The incentive object is only the appreciation income of the difference between the stock price in the secondary market and the exercise price of the incentive object, and it can't really obtain the stock of the enterprise. Unlisted companies are the gains from the increase in equity value granted by the incentive object.

2. The income sources of incentive objects are different. In stock options, the way of "enterprises treat and the market pays" is adopted, while in stock appreciation rights, the way of "enterprises treat and enterprises pay" is adopted, and the income of incentive objects is paid by enterprises in cash, which is essentially the deferred payment of corporate bonuses.

Advantages:

1. The incentive object does not need to buy stocks in cash.

2. There is no need to go to the CSRC for approval, and there is no need to go to the Industrial and Commercial Bureau to change the registration or modify the articles of association.

Disadvantages:

1. The weak efficiency of the capital market, the stock price in the secondary market can not reflect the true value of listed companies' stocks, which makes the stock price have little correlation with the performance of operators.

2. The cash flow of the company is under great pressure.

(VI) Performance stock

Performance stock refers to setting a reasonable performance target at the beginning of the year. If the incentive object reaches the predetermined target by the end of the year, the company will grant it a certain number of shares or withdraw a certain reward fund to buy the company's shares. There are usually time and quantity restrictions on the circulation and realization of performance stocks. The incentive object can be allowed to cash in the specified proportion of performance stocks after passing the performance appraisal in the next few years. If it fails to pass the performance appraisal, or there are behaviors that are detrimental to the company and abnormal resignation, the unfulfilled performance stocks will be cancelled.

Features:

1. The annual incentive bonus of senior executives is based on the operating performance of the company in that year, directly linked to the profit of that year, and generally linked to the return on net assets of the company in that year; According to the performance of senior executives, the company draws a certain reward fund every year.

2. The incentive bonus of senior management personnel is converted into the company's shares in whole or in part at the beginning, which is actually mandatory in stock purchase.

3. There are certain restrictions on the exercise time of the company's shares held by senior management. In the design of performance stock incentive scheme, we should pay attention to whether the scope and intensity of incentive are appropriate. If the incentive scope and intensity are too large, the incentive cost will rise, and the income will not be obvious for the company and shareholders, and the pressure of cash flow will also increase; However, if the scope and intensity of incentives are too small, the incentive cost and cash flow pressure will be reduced, but the incentive effect will probably be weakened. Therefore, the company should comprehensively consider various factors and find the balance point among incentive cost, cash flow pressure and incentive effect. Generally speaking, the incentive range is suitable for senior executives and key employees, and the incentive intensity can be lower for enterprises in traditional industries and higher for high-tech enterprises.

Advantages:

1. It can motivate the company's senior management to achieve performance goals. In order to obtain the incentive income in the form of stock, the incentive object will strive to achieve the company's predetermined performance goals; The incentive object becomes a shareholder of the company after obtaining the incentive stock, and has the same interests as the original shareholders, and will work harder to improve the company's performance, so as to obtain more benefits brought by the company's stock price rise.

2. It has a strong restraining effect. The prerequisite for the incentive object to get the reward is to achieve certain performance goals, and the income will be gradually realized in the future; If the incentive object fails to pass the annual assessment, it will be harmful to the company's behavior, abnormal transfer, etc., and the incentive object will be punished by risk of mortgage or the incentive stock will be cancelled, and the withdrawal cost will be high.

3. Performance stocks comply with existing domestic laws and regulations, are subject to fewer policy restrictions, conform to international practices, are relatively standardized, and can be implemented after being approved by the shareholders' meeting, with strong operability.

4. For the incentive object, under the performance stock incentive mode, the relationship between their job performance and the incentives they get is direct and close, and the acquisition of performance stocks only depends on their job performance, which hardly involves the stock market risk.