Equity Incentives Of Listed Companies In China

The primary goal of executive equity incentive is to align the interests ofmanagement with those of shareholders and to stimulate management to maximizeshareholder wealth and social value. The lack of long term incentive scheme formanagement of Chinese listed companies highlights the need for equity incentive.In China, there were many obstacles in the implement of equity incentive before,which resulted from the factors such as the laws and regulations related, opinions ofthe management and so on. As a matter of result, it was generally lack of the equityincentive for the executive of the Chinese listed company. Since 2005, share structurereformation has been being carried out and the Company Law and the Securities Lawof PRC were amended, which has been effective since Jan 1st 2006. Correspondingly,the provisions on the cooperation capital system, the stock repurchase, and thedisposition of the cooperation stock during holding a post have been amended, whichalso eliminated the main obstacles in the implement of equity incentive. Especially,with the share structure reformation that has been carried out all around, theeffectiveness of the stock market will be improved, which will set up a perfect marketfoundation for the population of the equity incentive in the Chinese listed companies.On Jan 4th 2006, the China Securities Regulatory Commission promulgated andenacted the "Provisional measures on the equity incentives in the listed company", inwhich it has been permitted for the listed company that has accomplished the sharestructure reformation to carry out the equity incentive to promote the normativeoperation and persisting development of the company. All that mentioned above hasprovided an excellent opportunity for the promotion of the equity incentivemechanism in the listed companies.This paper begins with the basic theory of equity incentive, then introduces theadvanced experiences of the listed companies aboard, and analyses the circumstanceson the equity incentive that carried out in the Chinese listed companies. The emphasisof the paper is put in the analysis in the new circumstances after the amendment of theCompany Law of the PRC and the enaction of the "Provisional measures on theequity incentives in the listed company". On the basis of the analysis in the details ofthe equity incentive that carried out in 2006 by the three Chinese listed companiesnamed Zoje Sewing Machine Co .,Lt, Beijing SL Pharmaceutical Co .,Ltd andShenzhen Zhenye Co .,Ltd, the paper introduces the new details and tendence of theequity incentive mechanism in China. At last but not least, the paper makes someadvice to improve the equity incentive mechanism in China.The basic structure of the thesis is listed as follows:Chapter 1 profiles the theory basis and introduction of equity incentive.Chapter 2 illustrates the experiences on the incentive mechanism in the advancedpublic companies in the foreign countries. As for the advantageous microcosmicenvironments such as the effectiveness of the stock market, perfect legal system andefficient human resource market, the stock incentive activities have been operatedeffectively. All the points mentioned above could give directions to the stock incentiveactivities in the public corporations in China.Chapter 3 introduces the development of the equity incentive activities in thepublic corporations in China, which is the core and highlight of this paper.Chapter 5 set forth some relevant suggestions and perspectives on perfecting theequity incentive environment and designing incentive mechanism.Through the above analysis, the author hope the research could have somecontribution for executive stock-based incentive in Chinese listed company.