What are the main difficulties in implementing equity incentives? Equity incentive is a complex systematic project. Many factors affect the smooth implementation and effectiveness of the incentive plan, such as industry characteristics, corporate governance structure, laws and regulations, financial issues, corporate management systems, etc. are all influencing factors. Whether listed companies or unlisted companies, they will encounter various difficulties and problems when implementing equity incentives.
1. Difficulties in equity incentives of listed companies
1. Lack of legal protection
Whether it is the " Company Law " or the " Securities Law ", there are no clear legal provisions and guarantees for equity incentives. In the "Company Law", only the remuneration of senior executives is mentioned, and the remuneration of directors and supervisors is decided by the company's shareholders' meeting, while the remuneration of managers, deputy managers and financial controllers is decided by the company's board of directors. This is not entirely consistent with the approval process for equity incentives.
2. The securities market is immature
Due to various reasons, the effectiveness of my country's securities market has always been low. One of the important manifestations is that the stock price cannot fully reflect the value of the stock itself, and the asymmetry between stock price and performance often occurs. When implementing equity incentive plans in this market environment where stock prices and performance are asymmetrical, it is very likely that the stocks of listed companies with blue chip stocks will not be profitable, or the profits will be very small, while the equity in the hands of managers of poorly managed loss-making companies may be Generous returns are obtained when exercising the rights, which leads to the reverse incentive effect of equity.
3. Liquidity issues with options or granted stocks
When the operator’s term of office expires, or he is dismissed due to poor management, or leaves the company due to transfer, retirement, etc., then how does the operator’s shares in the company be cashed out? It is purchased by the successor. , or will the departing operators continue to hold shares and enjoy dividends? Even if it is purchased by a subsequent operator, whether it can be purchased at the original price, how to evaluate the price of the withdrawn shares , etc., should all have principled regulations.
4. Lack of financial, taxation and other supporting systems
For example, can the dividends and value-added income received by the incentive objects from holding shares enjoy tax benefits? Personal income tax How to pay, whether it is a one-time income payment or a monthly dilution payment, this is also a problem that must be solved. For another example, how listed companies handle equity incentives financially requires the Ministry of Finance, the China Securities Regulatory Commission and other relevant departments to coordinate and formulate corresponding accounting treatment standards.
5. Imperfect corporate governance structure
As a long-term incentive system, equity incentive plans must play an important role under perfect corporate governance. At present, my country's corporate governance problems are still very prominent, which is not conducive to the implementation of equity incentive system . This is mainly reflected in the following aspects:
(1) The phenomenon of two positions in one is relatively serious. The company's operating managers are also the main leaders of the board of directors. This provides an institutional basis for managers to obtain unreasonable equity ratios for themselves. Convenience;
(2) The lack of an independent remuneration committee , and the proportion of external directors is significantly lower, which makes the remuneration committee lack independence and impartiality, thus affecting the implementation and development of equity incentive plans;
(3) The supervisory board is subject to internal Most people control , and its inspection and supervision function is weak.
6. How to evaluate business performance
Nobel Prize winner in economics Gary Becker once said: "Only when options can reward the good and punish the bad, it is a valuable business tool." In "Equity Incentive Management" The Measures stipulate that directors, supervisors, and senior managers should use performance appraisal indicators as conditions for implementing equity incentive plans. Therefore, how the performance assessment system and assessment methods of listed companies should be established, how they are calculated specifically, and how they are linked to option incentives need to be further improved.
2. Difficulties in equity incentives for unlisted companies
In addition to the common problems that exist when companies implement equity incentives, unlisted companies are also unable to be listed, and the company's shares cannot be listed and traded on the securities market, making the company's shares unavailable. The market price cannot reflect the company's value in real time and dynamically through the price discovery function of the securities market. This also makes the company's stock flow lack a platform for realization, and the liquidity is not strong. Therefore, unlisted companies still have their own unique difficulties when implementing equity incentives.
The main difficulties in implementing equity incentives for non-listed companies are:
1. Performance evaluations vary greatly;
2. The exercise price is difficult to determine;
3. The shareholding structure is difficult to grasp;
4. The exercise time and conditions are difficult to set;
5. Employees It is difficult to straighten out the advance and retreat mechanism as a shareholder;
6. It is difficult to convince employees of the authenticity of financial information and to establish a trust mechanism between employees and leaders.
3. How to deal with the difficulties of equity incentives
Although the implementation of equity incentives faces various difficulties, being fully prepared can effectively solve the problems of equity incentives. The main solutions are as follows:
1. Enterprises must conduct detailed investigations before implementing equity incentive plans.
Failure to understand the company’s information often leads to unfair equity incentive plans, weak enforceability, or violations of laws and regulations. And invalid. Therefore, in order to design a suitable plan for the company that can achieve the incentive effect or issue a legal opinion with legal effect, it is very necessary for professional lawyers or other intermediaries to conduct due diligence on the company before the plan is designed.
2. The content system of the enterprise's implementation of the equity incentive plan must be improved.
Whether the equity incentive mechanism can be implemented smoothly depends to a certain extent on the perfection of the company's internal system. Among them, the most important thing is the perfection of the company's legal governance mechanism, because without a complete legal person governance mechanism, it is impossible to establish a trust relationship between management and controlling shareholders, and it is impossible to establish an effective equity incentive system.
3. Improve the human resources management system
Equity incentive plan is also part of the salary income of core employees and is a long-term incentive income. The long-term stock option income provided by the equity incentive plan, plus the mid-term income from annual bonuses and monthly salary income as salary, can enable employees to take into account the company's short-term, mid-term and long-term interests in the business process.
Equity incentives are part of human resources. If they are to be effective, the company's entire human resources management needs to meet the basic requirements of the standards. A well-functioning human resources value management system is the basis for implementing equity incentives, which requires enterprises to build the following three systems:
Value creation system (position system)
Value evaluation system (performance appraisal system)
Value return system (salary incentive System)
