As an institutional arrangement to guide and motivate employees to serve the long-term development of enterprises, equity incentive plays a positive role in improving the company’s organizational structure, reducing management costs, enhancing overall cohesion and improving operation efficiency. In recent years, more and more companies pay attention to the important role of equity incentive and begin to adopt equity incentive to establish and improve the incentive and restraint mechanism and promote the development of enterprises.
According to the data, 893 equity incentive plans were disclosed in the A-share market in 2021. Since this year, the heat of equity incentive of listed companies has not decreased. As of February 17, 98 listed companies have disclosed new equity incentive plans.
from the fire of the stars to the prairie fire
Based on the title search with equity incentive as the keyword, the website of Shanghai Stock Exchange shows that more than 3440 pieces of information have been searched as of February 17, 2022, of which the earliest is an equity incentive management method disclosed on September 17, 2002, and the earliest detailed scheme is an incentive plan disclosed by Fengfan in February 2006; According to the website of Shenzhen Stock Exchange, the earliest relevant announcement was a management method of the company’s equity incentive system disclosed by Dong-E-E-Jiao Co.Ltd(000423) on April 13, 2004. According to the information from the two exchanges, most of the equity incentive announcements occurred after 2010.
According to the data, only 8 listed companies disclosed equity incentive schemes in the A-share market in 2005, and only dozens of listed companies disclosed incentive schemes every year from 2006 to 2010. From 2011 to 2016, the number of equity incentives in the A-share market began to increase steadily and has increased rapidly since 2017. A total of 893 incentive plans were disclosed in the A-share market in 2021, the highest in previous years.
Li Pengyan, founder of new hot wealth, told reporters that the rapid increase in the number of equity incentive schemes is due to the growth of the number of listed companies. More importantly, the continuous improvement of relevant supporting policies and the improvement of listed companies’ understanding of the role of equity incentive. Some listed companies that have tasted the “sweetness” of equity incentive have launched multi-period incentive plans with a wider coverage.
From the initial exploration and practice of a few companies to the extensive participation of the market, equity incentive has gradually become a new normal from the initial fire of stars to prairie fire. Some companies have launched multi-stage incentive plans continuously. For example, Montnets Cloud Technology Group Co.Ltd(002123) of the 2022 stock option incentive plan (Draft) was disclosed on February 14 this year. Previously, incentive plans had been issued in 2018, 2019 and 2021. Previously, the company had also launched an employee stock ownership plan.
increasing participation of state-owned enterprises
“In recent years, the number of equity incentive cases of listed companies has increased. On the one hand, it is in line with the interests of listed companies. On the other hand, it is also inseparable from the support and guidance of policies.” Zhang Xuefeng, a financial commentator who understands the economic platform, said in an interview with the Securities Daily that equity incentive can bind the interests of the company and the personal interests of employees, stimulate the work enthusiasm of employees, help the company retain talents, and thus help the stability of the company’s medium and long-term performance.
In addition to the increasing number of equity incentive schemes issued by the company, another change of equity incentive of A-share listed companies is also worthy of attention, that is, from the initial participation of private enterprises to now, more and more state-owned enterprises begin to join them.
In November 2019, Sgis Songshan Co.Ltd(000717) issued an equity incentive plan, which plans to grant 22.89 million stock options to 136 incentive objects; At the end of 2020, Angang Steel Company Limited(000898) issued the equity incentive plan and granted 46.8 million restricted shares to 174 incentive objects; In November 2021, Pangang Group Vanadium Titanium & Resources Co.Ltd(000629) also announced that it planned to grant 13.28 million restricted shares to 95 incentive objects.
Li Pengyan believes that in September 2015, the opinions on the development of mixed ownership economy in state-owned enterprises issued by the State Council proposed to adhere to the principle of combining incentives and constraints and steadily promote ESOP through pilot projects. In October 2019, the SASAC issued the notice on matters related to further improving the equity incentive work of listed companies controlled by central enterprises, and in April 2020, the SASAC issued the guidelines for the implementation of equity incentive work of listed companies controlled by central enterprises. A series of policies are gradually improved from the macro orientation to the micro operation level, making the equity incentive of state-owned enterprises more and more operable, which is also an important reason for more state-owned enterprises to participate in equity incentive.
The plan scheme is more original
The reporter noted that with the continuous practice of the market, the incentive plan is also more scientific, and the designs of stock sources, grant methods and assessment systems are more and more diverse. The incentive methods adopted are also different in different market environments and different development stages of the company.
\u3000\u3000 “Repurchased shares are used for equity incentive, which does not increase the number of shares and will not dilute the shares of the original shareholders. As a source of equity incentive shares, additional issuance will expand the total number of shares and dilute the share proportion of the original shareholders. For listed companies with rapid development, additional issuance can be selected, because the rapidly rising share price will reduce the resistance of the original shareholders’ shares to be diluted and oppose additional issuance. On the contrary, Companies whose performance has entered a stable period are suitable to implement equity incentive by means of repurchase. ” According to Bai Wenxi, chief economist of IPG China.
An Guangyong, an expert of the credit management committee of the all union M & A Association, believes that equity incentive is not omnipotent. To give full play to its advantages, we also need to meet some conditions. Excessive equity incentive may also disrupt the whole management system.
Liu Chang, partner of comptify analytics and compensation and welfare consulting expert, believes that excellent equity incentive design can be combined with various forms such as personal performance, periodic continuity, value creation and excess incentive, and carry out all-round design thinking from the perspective of comprehensive compensation.
“The performance evaluation indicators of the equity incentive scheme need to be designed according to the characteristics of the industry and enterprises and the principles that can be implemented, achieved and have the incentive effect. It is necessary to avoid losing the incentive effect because the indicators are falsely high or too low.” Bo Wenxi said.
Although most companies have launched equity incentive plans, which have played a positive role in improving the quality of operation, a small number of companies’ incentive plans are unreasonable or suspected of benefit transmission. In this regard, Kuang Yuqing, the research founder of lens company, a third-party research institution, believes that several rules can be considered to prevent the transfer of interests. For example, the voting rights of equity incentive beneficiaries in matters of the board of directors and the general meeting of shareholders should be appropriately limited and voting should be avoided; Focus on improving the special voice of independent directors for incentive plans.
Li Pengyan believes that with the introduction of relevant laws and regulations, China’s equity incentive standard system will be improved day by day, and various equity incentive measures will be more towards the original purpose, which will play an increasingly important role in mobilizing employees’ enthusiasm and improving the company’s performance.
