Design And Research On Equity Incentive Schemes For State-owned Enterprises

With the Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform, adopted at the Third Plenary Session of the 18th Central Committee of the Communist Party of China, We will allow mixed enterprises to implement employee stock ownership plans (ESOP) to form communities of capital owners and laborers. For State-owned enterprises (SOE), we will establish a long-term incentive and restraint mechanism, and strengthen investigations into the accountability of SOE operations and investment, and strictly regulate the salary benefits of SOE management personnel. The goals of employee stock ownership plans (ESOP) and long-term incentive and constraint mechanism are bounding employee material benefits and enterprise business performance together. It is the key and ways to take reasonable and effective equity incentive measures for the establishment of ESOP.The payments of equity incentive include cash-settled share-based payments and equity-settled share-based payments. It refers to a long-term incentive mechanism that enterprises will share enterprise equity in a specific form and cash earnings with equity valuation with these particular employees who are diligent and responsible to provide enterprises with quality long-term service so that they can participate decision and share profits and risks of doing business. In terms of SOE, they are often tightly restricted by some regulations such as enterprise nature, management model, state assets supervision, salary system and so on. Meanwhile, the labor and personnel management in SOE also remains more rigid administrative color. Compared with other incentive payments, equity incentive payments are more complicated. Due to these restrictive clauses, such as performance indicators, service period, violation responsibility and other restrictions regulated in equity incentive scheme, they often trigger disputes easily. Therefore, SOE usually intend to adopt short-term incentive measures, like merit pay system, social welfare safeguard system and post promotion, instead of equity incentive payments which can achieve long-term development for both enterprises and employees. The shortage of long-term incentive measures hinders the win-win-oriented development for SOE and their staff. This paper describes an efficient and available equity incentive scheme in Company H, a typical SOE in Shandong province. Therefore, this paper focuses on incentive subjects, incentive objects, resources of incentive shares and how to be granted and exercise incentive shares. It also further characterizes the grant date, waiting period and exercise date of incentive shares. The author, in the view of enterprise management and law, analyses that equity incentive scheme is supposed to be designed on base of the following:1, screen right people as incentive objects on the basis of distinguishing general employees and core employees; 2, choose appropriate means of payment applied to equity incentive scheme according to characteristics of enterprise; 3, forge a suitable response to solve problems of stock inverted by corporate capital and limit on the numbers of shareholders; 4, choose right source of equity according to pros and cons of share repurchase, equity capital increase and share transfer; 5, define fair values and exercise conditions of incentive shares; 6, prevent and control the crisis of performance indicators, service period, inheritance and division of benefits from incentive equity, termination of labor contract and labor economic compensation and so on. On the analysis of the design of equity incentive scheme in Company H in Shandong province, the author hopes it can provide reference and aids to the design of the state-owned enterprises in the theoretical and practical aspects..