Legal Issues Of Restricted Stock Incentive

Restricted stock incentive is a certain number of shares of the company which the listed company award objects of incentive according to the predetermined conditions. Only if the objects of incentive reach the conditions stipulated by restricted stock incentive plan both in years of working and performance objectives, they can sell and benefit from the restricted stock they acquire. The effective implementation of restricted stock incentive in the listed company is not only advantageous to the internal governance of company, but also beneficial to absorb and stabilize excellent talents. What’s more, it can resolve the entrust-agent problems of company, improve the value of company, and achieve a win-win condition. However, the incentive and constraint mechanism are out of sync, exposing many disadvantages in practice, such as the phenomenon of making salary by oneself, which makes restricted stock incentive becomes the benefit tools for the operator and damage the benefits of company and shareholder. Therefore, in order to restraint disadvantages, and take maximum utility of the restricted stock incentive mechanism, in the authorizing round, the independence of the executor, namely, remuneration and appraisal committee, should be reinforced; the construction of the independent director should be strengthened; the independent financial consultants should be employed to demonstrate the rationality of the implementation of incentive plan; approval of incentive plan should be completely determined by the general meeting of shareholders. In the round of enforcing right, assessment and evaluation of performance should be paid attention to. Reasonable financial indicators should be set, and other non-financial indicators should be adopted to examine the company’s performance and incentive objects according to the individual performance. The method of relative performance of the same industry is recommended. Of course, in the aspects of law and regulation, coordination of law, regulation and rule should be paid attention to. A complete set of laws related to the implementation of stock ownership incentive should be followed up. The completing of relative law, such as Company Law, Security Law, Tax Law, and Labor Law, provides a good legal environment for the implementation of restricted stock incentive in the listed company.