Equity Incentive and Corporate Governance
[Abstract] With the increasingly dispersed shareholding and management of increasingly complex technology, the world's largest companies have appeared in the separation of ownership and control of the trend, in order to effectively address the principal - agent problem, a reasonable incentive and constraint management as well as core technical staff, large U.S. companies using stock options and other equity incentive model, and 80 in the 20th century the Development of universal access. by the United States influence in the 90s in many developing countries to establish or improve their own equity incentive system, which the option and incentives become the world's most important listed companies the incentive model.
In contrast, shares of listed companies is seriously lagging behind the Development of incentive system, which is the rapid Development of China's securities market is extremely disproportionate. Our country has joined the WTO, listed companies will face competition from domestic and international double, and how with reasonable incentives to retain key talent to become a top priority to strengthen the incentive stock options to explore the theoretical studies and practical significance.
Keywords: incentive, stock options, listed companies
Share Ownership Encouragement and Corporate Governance
Abstract
In the United States, firms are using employee stock options more frequently and in sharply large quantities than just a decade ago. This trend is particular significant for high tech companies, such as Microsoft and Ebay. This great change can amalgamate employee's benefit with company's interest and reduce company's principal-agent cost remarkably. While in China, for the limitation of Law system, employee stock options are scarcely used by the listed companies. As China has entered into WTO, China's listed companies will face more rigorous competition from inland and abroad . It's urgent and very necessary for China to loosen policy restriction and allow the listed companies employee stock options and other stock-based employee compensation plans to motivate and detain their employees, especially senior managers and key technicians.
Keywords:: share ownership encouragement, stock options, listed company
CONTENTS I. Preamble • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 1
Second, the literature review • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 1
Third, performance pay system • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 2
(I hope that motivation theory • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 2
(B intrinsic and extrinsic rewards return • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 3
Fourth, the properties and types of motivation • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 3
(Incentive system is an important attribute of a • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 3
(B incentive type • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 4
Fifth, equity incentive Overview • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 4
(A What is the equity incentive • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 4
(B equity incentive types and methods • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 4
(C Comparison of the Equity Incentive Model • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 6
Sixth, stock option plans in China, the use of • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 7
(A principle of the incentive stock option plan • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 7
(B stock option plan implemented in China has made progress • • • • • • • • • • • • • • • • • • • • 8
(C the stock option plan in China there are still problems • • • • • • • • • • • • • • • • • • • 11
Seven case studies • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 14
VIII Summary • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 15
Appendix • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 16
Sources and references • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 16
First, the preamble of the modern corporate system in expanding the scale of enterprises, promoting economic Development, but also raises the issue of corporate governance. In corporate governance, the Board of Directors by the shareholders of the company's owners that the commission plan for corporate affairs, make decisions, and is responsible for the company's managers were hiring and supervision, by appointment of managers to implement the resolution of the board, which said the board structure in corporate governance plays an important role as a bridge. So I believe that the company governance is the core of the board's governance, corporate governance is the key to their respective board of directors and managers within the system between the building and the construction of incentive and restraint mechanisms, and this incentive mechanism embodied in the manager's compensation system.
In recent years, the company's remuneration practices in the incentive system managers to explore the most important result is the equity incentives. Equity incentive refers to the manager through the equity in the form of conditional grants to enable managers to shareholders as part of corporate decision-making , get a bonus, considering the company's long-term Development. Thus, the equity incentive is to improve corporate governance, reduce agency costs of a positive and effective control measures.
Equity incentive initially began in the United States. Currently, the U.S. manager's income comes from long-term incentive stock options and other income has accounted for a large proportion .2004 seven highest paid U.S. CEO, the average share of long-term incentive pay income total income 75%. and our executives base salary in 2005 for 85% of their total remuneration, performance-linked variable pay a small percentage, in addition to basic salary, 15% short-term incentives, long-term incentive is almost zero. recent to as <<Gong Sifa >>,<< Securities Act "> and some other Laws and regulations and related amendments to the new regulations have been put forward, and share the smooth progress of reform, we will usher in the Chinese equity incentive bright spring market.
This paper introduces the principles of equity incentive incentives, implementation approach, design and related accounting standards and tax regulations, but also tries to combine the establishment of modern corporate governance system of the reality and the actual characteristics of the implementation of equity incentive in the face of major issues and propose feasible solutions.
This paper is divided into the following sections: the introduction of this study is the content, purpose, meaning the introduction, followed by the reward system on performance, motivation, and incentive stock options described, the focus of the fifth part is the implementation of equity incentive , Part VI will be successful for a grant of equity incentives case, the reason for its success, and finally the conclusions and recommendations.
Second, although equity incentive literature review was welcomed by many investors, but the academic community for the equity incentive effects of corporate governance but there is a wide range of disputes. Early Western finance theory there are two assumptions about the equity incentive effects: one is "same interest" hypothesis (convergence of interests, the other is the "defense" hypothesis (entrenchment hypothesis.Jensen and Meckling that the separation of ownership and management rights will result in the agency costs arising as equity incentives increase the operators stake reduced, because the operators-the-job consumption costs borne by its own, so the occupation of the interests of shareholders to reduce the possibility that the "same interest" hypothesis. Fama and Jensen pointed out that with the implementation of incentive stock options, the operator holding accounts for more than a one level, the operator has sufficient voting power to ensure their own status and welfare of the company, prompting the company to maximize the value of its pursuit of non-target, which is the so-called "defense" hypothesis.
As the great use of equity incentives, leading to changes in the operator stake. Western scholars on the Ownership and performance of the relationship between the empirical results, but also there are two opposite conclusion: a conclusion that the two For example, Morck et al. The effects of Tobin's Q and the operators of the relationship between ownership percentage, an operator holding at a relatively low proportion of 0-10%, the "same interest" assumption, when the operator holds proportion of shares is large (more than 20%, the "defense" hypothesis. Another concluded that two independent, such as Demsetz and Lehn 1980 U.S. 511 will be the company's book profits with a variety of indicators of ownership concentration regression analysis showed that among them there is no significant correlation.
These contradictory findings result in part because of: the Western scholars less equity incentive from the perspective of the Ownership issues. Core and Larcker companies and operators from the point of signing a contract, that the cross-section regression on the Ownership of data nothing to do with the performance ratio, they examined the 1995 United States in 1991 with the "target the Ownership Plan" (target ownership plans companies, which require the operator to increase the stock of the Company held until it reaches the company's (operator holding the ratio of the amount of the amount of their minimum salary. They found that 2 years after implementation of these companies have made over the stock and accounting returns, come to increase the holdings of the incentive system operators will increase effectiveness of corporate governance (corporate performance conclusions.
In recent years, many Researchers Listed Company, gave a lot of equity incentive. Wei just found senior management equity incentive by small, low levels of ownership, "zero ownership" is common. Senior Management Renyuanchigu no incentive to achieve the expected results. Tongjing Jun equity incentive will be implemented and the whole performance of listed companies to compare the performance of listed companies and found that the implementation of equity incentive to improve performance of listed companies in China have some effect, but less obvious. Zhangjun Rui etc. found that the number of executives with annual compensation of the proportion of executives holding a positive correlation between instability. Zhou JB, Sun Jusheng results suggest that: a high growth company, improving operating performance and equity incentives for the operators increase in the number of shares a significant positive correlation. to force the Ownership, with an annual salary to buy shares outstanding, and better incentives for mixed mode. But the study's sample size, the original sample of only 34 listed companies.
Third, the merit pay system was the performance of a reward system and private ownership as a symbol of capitalism, in their view, no good performance reward system, modern enterprises can not operate effectively. In fact, when the owners have for the first time Gu Yong managers to manage their capital, performance pay has emerged. in the early and mid-and late Middle Ages, destined for the Far East and the New World to share maritime trade profits, the industrial revolution of the piece rate, and share the profits of modern enterprises, are Examples of performance pay. performance pay reflects a widely accepted belief: If you want to inspire people to achieve organizational goals, they must meet performance levels according to their reward.
(I expect that the expectancy theory motivation theory, people take a certain behavior, because they believe this approach will produce valuable returns. Under this theory, the role of compensation is that when a person's behavior promote the goals of the organization when to provide them with the corresponding value in return.
Figure 1 Expectancy Theory
Figure 1 describes the expectations theory. Enterprises to establish incentive systems that are to achieve the objective of promoting the business or acts of personal achievement reward. Individuals to cultivate their knowledge and skills to make appropriate decisions, these decisions are the result of the They provide attention and has been the pursuit of their return.
American psychologist and management expert at the Porter and Lawler expectancy theory developed on the basis of a more comprehensive incentive model, that Porter - Lawler model.
Figure 2 Porter - Lawler model
Shown in Figure 2, a person's level of effort (incentive strength and the energy to play depends on the performance (reward value and expected value (through the possibility to achieve high performance and the performance led to the possibility of a particular result. And work depends on the actual performance by the staff's efforts, but it is also subject to the ability of individuals engaged in the work (knowledge and skills and his understanding of the work (on the target, the required activities and other factors related to the understanding of the task level, and environmental factors.
(B internal rewards and external rewards can be seen in Figure 2, performance will bring rewards, some of which reward is intrinsic, and some are external rewards.
Intrinsic rewards derived from a person's heart, a job well done, such as a sense of achievement, personal values or beliefs to achieve satisfaction and so on. Experience the intrinsic rewards do not need another intervention. Enterprises through job design, corporate culture and management style transformation of the inner Experience of the individual creating the conditions for return, but individuals still need to feel or Experience within the independent returns. extrinsic rewards a person to give another person, including the recognition of external rewards, prizes, medals, awards, etc., including of course performance-based compensation, that is, incentive compensation or performance pay.
These coupled with the personal rewards are fair and reasonable compensation for these assessments, such as that pay is fair, will lead to personal satisfaction. The actual performance and get paid will also affect the future understanding of individual expectations, the same individuals on the effect after price will be satisfied or not understanding the impact. Thus, the theory reflects such a virtuous cycle: Incentive bonus �� �� �� effort �� performance �� performance �� meeting �� Awards �� to meet �� ... ...
Fourth, the properties and types of incentives
(A incentive system is fundamentally important properties, the establishment of incentive systems designed to make the interests of owners and managers of the same interests. In order to achieve this objective, the manager the following questions must have a clear understanding:
1. For their work, which measure the performance variables,
2. How their actions affect these performance variables,
3. How to transform the variable performance pay for individuals.
If the managers of this causal process is not clearly understood, the system will lose the incentive to promote or influence the ability of decision-making behavior. Performance appraisal system performance and the results are used to link individual employee compensation. This process is in Figure 1 to illustrate content, which to link individual performance with pay, so that the reward with the incentive function.
Should be noted that the results of performance evaluation system or performance indicators in the key role here, because it is personal motivation and established a link between business goals. These results or performance indicators must be of such a nature, that is, when the individual pursuit of these results They contribute to its goals. Therefore, these performance indicators must be able to reflect how the work of individuals to contribute to business goals. The work was ignored by the local performance indicators, but also for individuals ignored or taken lightly.
Despite the clarity and understanding of the performance evaluation system reflects the order to ensure that policymakers understand the performance and the causal link between remuneration must possess the technical characteristics, performance evaluation system must also reflect some of the behavioral characteristics.
First and most important, the individual must believe that this system is fair. For example, to measure and reward employee performance that he can not control the erosion of the performance appraisal system or loss of incentives, the establishment of employees find it very difficult or impossible to achieve standards of performance evaluation system will also inhibit the performance incentives. The key is that employees must believe that he can use legitimate means to influence their compensation linked to performance indicators. Without this belief, performance evaluation system will be completely lost the role of incentives.
Second, individuals must believe in corporate incentive policy is fair. For example, compensation for senior management of millions of dollars, but only up to a few hundred dollars reward assembly workers, which will form the only senior member of the enterprise was an atmosphere of attention. In such an atmosphere, a good incentive system will become less effective.
Third, the incentive system must be timely and provide incentives to strengthen the decision-making, performance evaluation and reward linkages. As time goes on, in the consciousness of decision makers, business activities and the links will gradually fade compensation, but in time decision makers to reward can enhance the understanding of business activities and rewards.
(B motivate the type of the type of incentive is the classification of the different incentives, incentive programs according to the following criteria to distinguish between:
1. Immediate and long-term incentives usually take the spot to current performance-based remuneration in the form of cash or stock, long-term incentives usually take the form of share options, the value of ordinary shares of the company's long-term performance linked.
2. Cash and equity incentives can take the form of cash or equity in the form of (shares, options, shares and performance shares unreal. Although cash and equity return can be associated with both short-term performance, but also associated with long-term performance, but the cash usually associated with short-term profit performance, while the interest is often associated with long-term price of ordinary shares linked to performance.
3. Monetary and non-monetary incentives can be cash or quasi cash, or other non-monetary privileges and rights. Privileges many forms, the most common privileges include life insurance, use of company cars, preferential interest rates from the company loans. sometimes up to a certain position to get certain privileges, and sometimes are based privileges and granted an informal performance evaluation. Other non-monetary incentives including the use of an official certificate of recognition, to enhance staff participation in preparation for the establishment of the Human Development These incentives are often based on informal performance evaluation.
This article focuses on the incentive, this does not mean that other forms of incentive is not important, but because with the <<Equity Incentive Measures for the Administration of Listed Companies>> The introduction of the use of equity incentives in China will be more and more frequently, I believe that there Research needs.
V. Overview of equity incentive
(A What is the equity incentive as opposed to "salary + bonus + benefits" as the basic features of the traditional system in terms of incentive compensation, equity incentives to enterprises and staff in a more firmly established, the strategic development of closer relations Currently, the base salary and annual bonus has been the company can not fully mobilize the enthusiasm of senior management, especially for long-term incentives is difficult to work. The long-term incentive equity incentives as a way to allow the operator or by employees in the form of access to equity , or give the right to enjoy appropriate economic benefits, enabling them to participate as shareholders share the profits �p �p business decisions to take risks, to due diligence for the company's long-term development.
Incentive stock options from the modern enterprise management theory of principal-agent theory. Principal-agent theory of agency costs in the proposed main structure has two parts: one is produced by the asymmetric information costs of monitoring, the other is generated by the information asymmetry moral hazard costs. If, as the principal shareholder develop the most appropriate incentive mechanism, so as an agent for the operators acting in their best interests, then the agency cost will be greatly reduced. only to give a certain percentage of business operators profits so that the operator's operating results and business benefits associated with in order to achieve the operator to maximize profits for shareholders service objectives. and equity incentive function is to allow operators to hold corporate shares, and shareholders with their shares residual profits, personal income to the operators and enterprises linked to economic performance, prompting the company to maximize profits for the service.
Internationally, the equity incentive plan is the more common practice of listed companies. For the general point of view, equity incentive plans can be professional managers, long-term interests of shareholders, the company's long-term development together, to some extent prevent the manager's short-term business behavior, and prevent "internal control" and other acts against the interests of shareholders. In addition, the modern theory and foreign equity incentive proved to improve corporate governance, reduce agency costs �p improve management efficiency and enhance market competitiveness of the company cohesion and play a very active role.
(B equity incentive equity incentive types and methods of application are common in Western countries, including the United States equity incentive tools for the richest and most complete system environment, the following are some typical equity incentive model:
1. Stock Options (Stock Option
Also known as warrants, is actually a call option. Is the object of a company granted a right incentive, incentive object within a specified time (exercise on a pre-determined price (exercise price to purchase a certain number of outstanding shares of the Company (exercise. stock options is only a right but not the obligation, the holder in the stock price below the "strike price" can give up this right, and therefore no risk of the stock option holders.
Prerequisite for the implementation of the assumption of stock options is the company's intrinsic value stocks can be true in the securities market reflects the market as share prices in the effective long term profitability of the company's response, and at least one year of stock options before they can achieve, they were In order to grant stock appreciation of those who spread income earned, will try to maintain the performance of the company's long-term stable growth, the rising value of the stock, thus making long-term incentive stock options have a function.
Stock Options The most popular model in the United States, methods of operation and most specifications. As the 20th century bull market in U.S. stock market 90 years, stock options to senior management to yield huge benefits. Stock options in the international community is one of the most classic, the most widely used equity incentive model. 500 large companies worldwide in 89% of senior managers have implemented a stock option.
2. Restricted Stock Plan (Restricted Stock Plan
Prior to grant incentive target is a certain amount of company stock, but the source of the stock, selling, etc. There are some special restrictions, encouraging object only after a specified period of service and complete the specific performance goals (such as profitability, the only selling restrictions of the stock and benefit from, or has the right to recover the free gift of restricted stock or incentive target purchase price of restricted stock repurchase. In other words, the company will free a certain number of restricted stock grants or more low price sale with senior management, but their right to sell the stock limit. The purpose of the adoption of restricted stock is to encourage senior management to put more time and energy into one or some of the long-term strategic objectives .
3. The Ownership (Executive Stock
The management of the Company held by a certain number of shares and lock a certain period. Incentive stock by the way the object can be donated to the company free of charge, subsidized by the company, was inspired to buy the company forcing investors to buy their own and other beneficiaries . incentive stock after the object has become shareholders of their enterprises, and businesses to risk and share gains. participate in stock ownership plan have been inspired by a real stock, with the corresponding voting rights and distribution rights, and bear the losses and stock price risk, in order to establish enterprises, owners and operators of three of the interests of one community.
4. ESOP (Employee Stock Ownership Plan, ESOP abbreviation
Is funded by the individual employees within the company to subscribe for part of the shares of the Company, and commissioned the company to centrally manage the property rights organization. Employee Stock Ownership for the distribution of employees in the enterprise system provides the conditions for workers and the owners truly reflects the dual identity of the owner. The core is through employee-owned operation, will be the future of employee benefits and business closely linked to form a distribution according to work distribution according to capital combined with a new interest checks and balances. Meanwhile, the employee stock ownership commitment after a certain amount of investment risk, which helps to raise staff awareness of risk, to stimulate long-term investment behavior of employees. As employee-owned business operations not only have a full staff of voice and supervision, but also staff more concerned about the long-term development of enterprises, which is improving scientific decision-making, management, Administration, supervision and distribution mechanisms laid a good foundation.
ESOP is a new organizational form of business property. Under this system, employees not only workers, but also property owners, through the labor and capital together to form a community of interest the double. In this way, even if the ordinary business "wage earners "can become the owner of the assets as" small capitalists "so that" workers who have their shares "ideal.
5. MBO (Management Buy Out, abbreviated as MBO
Also known as "managers leveraged buyout" refers to the company's manager or managers (individual or collective use of loans financing the purchase of the shares of the Company (or options to change the company ownership structure, control structure and asset structure, to achieve business ownership. Meanwhile, it is also an extreme equity incentives, as other incentives are the owner (the property rights of the employee's motivation, and MBO is simply to motivate the subject and object into one, in order to achieve being motivators and business interests, the interests of shareholders a complete unity.
The usual practice is a joint venture company set up management and staff or management employee stock ownership will be funded (usually set up a new company credit finance the acquisition of subject, one or more shareholders through its grant to the former state-owned holding company shares, thereby directly or indirectly the controlling shareholder of the company.
In addition to these forms of equity incentives also include a virtual stock (Phantom Stock, deferred payment plans (Deferred Compensation Plan, stock appreciation rights (Stock Appreciation Rights, Stock Awards (Stock Award, Performance shares (Performance Stock, Performance Units (Performance Unit, the book value appreciation rights (Net Asset Appreciation Right, savings - Stock Participation Programme (Saving-Stock Participate Plan and so on.
(C Comparison of the Equity Incentive Equity Incentive model well reflects the characteristics of Human Capital by enabling operators to gain equity, giving the operator a certain economic rights, enabling them to participate as shareholders, business decisions, share profits, to take risks, to due diligence for the company's long-term development of services, and shareholders and to achieve win-win situation between operators.
Table 1 Comparison between equity incentive model
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Sixth, stock option plans in China, the use of equity incentives is one important form of stock option plans, mainly for corporate executives and senior technical personnel incentives, mostly fast-growing technology companies by the stock option plan, which is Silicon Valley start a cash cow for technology companies create rich, Microsoft, GOOGLE is manufactured by a large number of billionaires stock options. Last year, caused a sensation in China, the Nasdaq search engine - Baidu company and high volume manufacturing millionaires through stock options.
Although foreign equity incentive system has achieved rapid development, China's equity incentive system is just in its infancy, many domestic listed companies active in the exploration, the following stock options have been introduced to China, the results achieved and problems elaborate.
(Incentive stock option plan for a so-called principle of granting stock options is the internal staff of a company within a certain period in the future at a predetermined price or conditions, the right to subscribe for shares, stock options were granted to those who can wait until after the expiry of within the period before pre-determined price or conditions of purchase of shares of listed companies can also give up the right to exercise the stock purchase, in general, non-transferable stock options may not be used for security and repay debt.
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4. Gradually improve the information disclosure system point of view from the United States and other developed countries, listed companies must implement stock option plans in accordance with established rules for disclosure of related information, general information disclosure stock option plans include the following:
(A gift should be given to disclosure. The company shall grant stock options when the number of grant, exercise price, expiration date, and other senior executives receive a public disclosure of the situation and report to the SFC and the Stock Exchange for the record.
(2 lines at the right prompt notice shall be published. Line right before the arrival date, the company announced in advance. Right at the end of the line and share registration is completed, the company shall exercise the number, exercise price and the executives exercised the situation the case of stock options held by the disclosure.
(3 regular financial disclosure reports. Company shall in its annual report, mid-year report disclosed in the Company's stock option plan of the situation and stock options held by executives situation and get the number of other pay. Abroad, there are strict on this one limited, such as: the United States Securities and Exchange Commission in February 1992 require listed companies to disclose details of executive remuneration structure, when the number of stock options exercised and the outstanding value of stock options exercised and other information. In addition, the U.S. Securities and Exchange Commission also requested the company to provide the highest-paid chief executive officer and four other senior management personnel such as the pay past three years.
The above three aspects, in the newly established <<Equity Incentive Measures for the Administration of Listed Companies>> Chapter V of the implementation of procedures and information disclosure requirements also have a corresponding. More and more perfect information disclosure system, but also for the more equity incentives in China paved the way for a good development.
(C the stock option plan is still in China, the problems
1. Governance structure of listed companies because the separation of ownership and management, leading to agency problems, managers and investors that the potential benefits of those inconsistencies, resulting in internal control. State holding listed companies within the outstanding issue is the control that managers actual control of inside directors as the company's business decision-making. As state-controlled listed companies are usually made by the state-owned enterprise restructuring, the former senior management of state-owned enterprises into stock companies the directors and managers, who largely control the enterprise business decision-making, easy to form the insider control the situation. internal control can generally be investigated by three aspects: one is the chairman and general manager of the two-level one, the other is the composition of board members, the third Board of Supervisors The composition of the members. which also exposed the governance structure of listed companies have some defects, mainly as follows:
(1 Listed Companies in Figure 4 are quite serious one in Shanghai and Shenzhen in China Listed Companies One Form of
Chairman and general manager for one of the two level problem, Miss International 2001, 2004, Lin Shanghai and Shenzhen 301 listed companies were the statistics reflect the unity of Listed Companies in China's specific situation, the details shown in Figure 4 .
Figure 4, the statistical state of Listed Companies will be divided into two completely separate (internal directors are not senior executives, including president, vice president, finance managers and other department managers, functional part of the separation of the two (total company directors management of more than 60% of the number and proportion of full unity between the two level (within the company took all of the directors, general manager, deputy general manager, financial manager of the seat. statistics showed that: in Shanghai and Shenzhen 301 companies in the two samples complete one level of 45 listed companies, the separation of the two post some 97 listed companies, two jobs are completely separate 159 listed companies, to 2001, complete separation of the two listed companies post 52.8%, while over 1998 years to improve a lot, but the case of two level-one listed company in China is still very high proportion.
(2 listed companies significantly lower proportion of outside directors constitute a board of directors, is a measure of internal control of listed companies is another important indicator. Because of the special ownership structure of listed companies, the company a higher degree of insider control, and state-owned shares the proportion of listed companies is positively related to internal control. According to sample survey, with outside directors of listed companies accounted for 50.52% of the total sample of companies, of which the largest shareholder of the company complete control of the company, with the ratio of outside directors only 14.3%.
Figure 5 listed companies in China the proportion of internal control
Researchers in 1998 to "internal control system" of listed companies of the extent of insider control, found in its collection of 406 sample companies, the directors of each company an average of 9.7 people, including 3.2 outside directors, inside directors 6.5 , the average degree of internal control 67.0%, and the degree of internal control of listed companies and equity concentration was positively related to the specific form shown in Figure 5.
(3 of Supervisory Board Supervisory Board by the serious internal control is the monitoring of the management operations of the inspectorate to ensure that the business activities of listed companies in a fair, just, do not deviate from the interests of all shareholders. But unfortunately, due to our considerable part of the company's Supervisory Board to undertake a majority of insiders, check the inspectors function is weak.
Part of the survey data in Table 2 reflects the board of supervisors of listed companies controlled by the internal situation.
Table 2 Supervisory control of listed companies in China Form Distribution
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In contrast, shares of listed companies is seriously lagging behind the Development of incentive system, which is the rapid Development of China's securities market is extremely disproportionate. Our country has joined the WTO, listed companies will face competition from domestic and international double, and how with reasonable incentives to retain key talent to become a top priority to strengthen the incentive stock options to explore the theoretical studies and practical significance.
Keywords: incentive, stock options, listed companies
Share Ownership Encouragement and Corporate Governance
Abstract
In the United States, firms are using employee stock options more frequently and in sharply large quantities than just a decade ago. This trend is particular significant for high tech companies, such as Microsoft and Ebay. This great change can amalgamate employee's benefit with company's interest and reduce company's principal-agent cost remarkably. While in China, for the limitation of Law system, employee stock options are scarcely used by the listed companies. As China has entered into WTO, China's listed companies will face more rigorous competition from inland and abroad . It's urgent and very necessary for China to loosen policy restriction and allow the listed companies employee stock options and other stock-based employee compensation plans to motivate and detain their employees, especially senior managers and key technicians.
Keywords:: share ownership encouragement, stock options, listed company
CONTENTS I. Preamble • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 1
Second, the literature review • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 1
Third, performance pay system • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 2
(I hope that motivation theory • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 2
(B intrinsic and extrinsic rewards return • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 3
Fourth, the properties and types of motivation • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 3
(Incentive system is an important attribute of a • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 3
(B incentive type • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 4
Fifth, equity incentive Overview • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 4
(A What is the equity incentive • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 4
(B equity incentive types and methods • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 4
(C Comparison of the Equity Incentive Model • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 6
Sixth, stock option plans in China, the use of • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 7
(A principle of the incentive stock option plan • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 7
(B stock option plan implemented in China has made progress • • • • • • • • • • • • • • • • • • • • 8
(C the stock option plan in China there are still problems • • • • • • • • • • • • • • • • • • • 11
Seven case studies • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 14
VIII Summary • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 15
Appendix • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 16
Sources and references • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 16
First, the preamble of the modern corporate system in expanding the scale of enterprises, promoting economic Development, but also raises the issue of corporate governance. In corporate governance, the Board of Directors by the shareholders of the company's owners that the commission plan for corporate affairs, make decisions, and is responsible for the company's managers were hiring and supervision, by appointment of managers to implement the resolution of the board, which said the board structure in corporate governance plays an important role as a bridge. So I believe that the company governance is the core of the board's governance, corporate governance is the key to their respective board of directors and managers within the system between the building and the construction of incentive and restraint mechanisms, and this incentive mechanism embodied in the manager's compensation system.
In recent years, the company's remuneration practices in the incentive system managers to explore the most important result is the equity incentives. Equity incentive refers to the manager through the equity in the form of conditional grants to enable managers to shareholders as part of corporate decision-making , get a bonus, considering the company's long-term Development. Thus, the equity incentive is to improve corporate governance, reduce agency costs of a positive and effective control measures.
Equity incentive initially began in the United States. Currently, the U.S. manager's income comes from long-term incentive stock options and other income has accounted for a large proportion .2004 seven highest paid U.S. CEO, the average share of long-term incentive pay income total income 75%. and our executives base salary in 2005 for 85% of their total remuneration, performance-linked variable pay a small percentage, in addition to basic salary, 15% short-term incentives, long-term incentive is almost zero. recent to as <<Gong Sifa >>,<< Securities Act "> and some other Laws and regulations and related amendments to the new regulations have been put forward, and share the smooth progress of reform, we will usher in the Chinese equity incentive bright spring market.
This paper introduces the principles of equity incentive incentives, implementation approach, design and related accounting standards and tax regulations, but also tries to combine the establishment of modern corporate governance system of the reality and the actual characteristics of the implementation of equity incentive in the face of major issues and propose feasible solutions.
This paper is divided into the following sections: the introduction of this study is the content, purpose, meaning the introduction, followed by the reward system on performance, motivation, and incentive stock options described, the focus of the fifth part is the implementation of equity incentive , Part VI will be successful for a grant of equity incentives case, the reason for its success, and finally the conclusions and recommendations.
Second, although equity incentive literature review was welcomed by many investors, but the academic community for the equity incentive effects of corporate governance but there is a wide range of disputes. Early Western finance theory there are two assumptions about the equity incentive effects: one is "same interest" hypothesis (convergence of interests, the other is the "defense" hypothesis (entrenchment hypothesis.Jensen and Meckling that the separation of ownership and management rights will result in the agency costs arising as equity incentives increase the operators stake reduced, because the operators-the-job consumption costs borne by its own, so the occupation of the interests of shareholders to reduce the possibility that the "same interest" hypothesis. Fama and Jensen pointed out that with the implementation of incentive stock options, the operator holding accounts for more than a one level, the operator has sufficient voting power to ensure their own status and welfare of the company, prompting the company to maximize the value of its pursuit of non-target, which is the so-called "defense" hypothesis.
As the great use of equity incentives, leading to changes in the operator stake. Western scholars on the Ownership and performance of the relationship between the empirical results, but also there are two opposite conclusion: a conclusion that the two For example, Morck et al. The effects of Tobin's Q and the operators of the relationship between ownership percentage, an operator holding at a relatively low proportion of 0-10%, the "same interest" assumption, when the operator holds proportion of shares is large (more than 20%, the "defense" hypothesis. Another concluded that two independent, such as Demsetz and Lehn 1980 U.S. 511 will be the company's book profits with a variety of indicators of ownership concentration regression analysis showed that among them there is no significant correlation.
These contradictory findings result in part because of: the Western scholars less equity incentive from the perspective of the Ownership issues. Core and Larcker companies and operators from the point of signing a contract, that the cross-section regression on the Ownership of data nothing to do with the performance ratio, they examined the 1995 United States in 1991 with the "target the Ownership Plan" (target ownership plans companies, which require the operator to increase the stock of the Company held until it reaches the company's (operator holding the ratio of the amount of the amount of their minimum salary. They found that 2 years after implementation of these companies have made over the stock and accounting returns, come to increase the holdings of the incentive system operators will increase effectiveness of corporate governance (corporate performance conclusions.
In recent years, many Researchers Listed Company, gave a lot of equity incentive. Wei just found senior management equity incentive by small, low levels of ownership, "zero ownership" is common. Senior Management Renyuanchigu no incentive to achieve the expected results. Tongjing Jun equity incentive will be implemented and the whole performance of listed companies to compare the performance of listed companies and found that the implementation of equity incentive to improve performance of listed companies in China have some effect, but less obvious. Zhangjun Rui etc. found that the number of executives with annual compensation of the proportion of executives holding a positive correlation between instability. Zhou JB, Sun Jusheng results suggest that: a high growth company, improving operating performance and equity incentives for the operators increase in the number of shares a significant positive correlation. to force the Ownership, with an annual salary to buy shares outstanding, and better incentives for mixed mode. But the study's sample size, the original sample of only 34 listed companies.
Third, the merit pay system was the performance of a reward system and private ownership as a symbol of capitalism, in their view, no good performance reward system, modern enterprises can not operate effectively. In fact, when the owners have for the first time Gu Yong managers to manage their capital, performance pay has emerged. in the early and mid-and late Middle Ages, destined for the Far East and the New World to share maritime trade profits, the industrial revolution of the piece rate, and share the profits of modern enterprises, are Examples of performance pay. performance pay reflects a widely accepted belief: If you want to inspire people to achieve organizational goals, they must meet performance levels according to their reward.
(I expect that the expectancy theory motivation theory, people take a certain behavior, because they believe this approach will produce valuable returns. Under this theory, the role of compensation is that when a person's behavior promote the goals of the organization when to provide them with the corresponding value in return.
Figure 1 Expectancy Theory
Figure 1 describes the expectations theory. Enterprises to establish incentive systems that are to achieve the objective of promoting the business or acts of personal achievement reward. Individuals to cultivate their knowledge and skills to make appropriate decisions, these decisions are the result of the They provide attention and has been the pursuit of their return.
American psychologist and management expert at the Porter and Lawler expectancy theory developed on the basis of a more comprehensive incentive model, that Porter - Lawler model.
Figure 2 Porter - Lawler model
Shown in Figure 2, a person's level of effort (incentive strength and the energy to play depends on the performance (reward value and expected value (through the possibility to achieve high performance and the performance led to the possibility of a particular result. And work depends on the actual performance by the staff's efforts, but it is also subject to the ability of individuals engaged in the work (knowledge and skills and his understanding of the work (on the target, the required activities and other factors related to the understanding of the task level, and environmental factors.
(B internal rewards and external rewards can be seen in Figure 2, performance will bring rewards, some of which reward is intrinsic, and some are external rewards.
Intrinsic rewards derived from a person's heart, a job well done, such as a sense of achievement, personal values or beliefs to achieve satisfaction and so on. Experience the intrinsic rewards do not need another intervention. Enterprises through job design, corporate culture and management style transformation of the inner Experience of the individual creating the conditions for return, but individuals still need to feel or Experience within the independent returns. extrinsic rewards a person to give another person, including the recognition of external rewards, prizes, medals, awards, etc., including of course performance-based compensation, that is, incentive compensation or performance pay.
These coupled with the personal rewards are fair and reasonable compensation for these assessments, such as that pay is fair, will lead to personal satisfaction. The actual performance and get paid will also affect the future understanding of individual expectations, the same individuals on the effect after price will be satisfied or not understanding the impact. Thus, the theory reflects such a virtuous cycle: Incentive bonus �� �� �� effort �� performance �� performance �� meeting �� Awards �� to meet �� ... ...
Fourth, the properties and types of incentives
(A incentive system is fundamentally important properties, the establishment of incentive systems designed to make the interests of owners and managers of the same interests. In order to achieve this objective, the manager the following questions must have a clear understanding:
1. For their work, which measure the performance variables,
2. How their actions affect these performance variables,
3. How to transform the variable performance pay for individuals.
If the managers of this causal process is not clearly understood, the system will lose the incentive to promote or influence the ability of decision-making behavior. Performance appraisal system performance and the results are used to link individual employee compensation. This process is in Figure 1 to illustrate content, which to link individual performance with pay, so that the reward with the incentive function.
Should be noted that the results of performance evaluation system or performance indicators in the key role here, because it is personal motivation and established a link between business goals. These results or performance indicators must be of such a nature, that is, when the individual pursuit of these results They contribute to its goals. Therefore, these performance indicators must be able to reflect how the work of individuals to contribute to business goals. The work was ignored by the local performance indicators, but also for individuals ignored or taken lightly.
Despite the clarity and understanding of the performance evaluation system reflects the order to ensure that policymakers understand the performance and the causal link between remuneration must possess the technical characteristics, performance evaluation system must also reflect some of the behavioral characteristics.
First and most important, the individual must believe that this system is fair. For example, to measure and reward employee performance that he can not control the erosion of the performance appraisal system or loss of incentives, the establishment of employees find it very difficult or impossible to achieve standards of performance evaluation system will also inhibit the performance incentives. The key is that employees must believe that he can use legitimate means to influence their compensation linked to performance indicators. Without this belief, performance evaluation system will be completely lost the role of incentives.
Second, individuals must believe in corporate incentive policy is fair. For example, compensation for senior management of millions of dollars, but only up to a few hundred dollars reward assembly workers, which will form the only senior member of the enterprise was an atmosphere of attention. In such an atmosphere, a good incentive system will become less effective.
Third, the incentive system must be timely and provide incentives to strengthen the decision-making, performance evaluation and reward linkages. As time goes on, in the consciousness of decision makers, business activities and the links will gradually fade compensation, but in time decision makers to reward can enhance the understanding of business activities and rewards.
(B motivate the type of the type of incentive is the classification of the different incentives, incentive programs according to the following criteria to distinguish between:
1. Immediate and long-term incentives usually take the spot to current performance-based remuneration in the form of cash or stock, long-term incentives usually take the form of share options, the value of ordinary shares of the company's long-term performance linked.
2. Cash and equity incentives can take the form of cash or equity in the form of (shares, options, shares and performance shares unreal. Although cash and equity return can be associated with both short-term performance, but also associated with long-term performance, but the cash usually associated with short-term profit performance, while the interest is often associated with long-term price of ordinary shares linked to performance.
3. Monetary and non-monetary incentives can be cash or quasi cash, or other non-monetary privileges and rights. Privileges many forms, the most common privileges include life insurance, use of company cars, preferential interest rates from the company loans. sometimes up to a certain position to get certain privileges, and sometimes are based privileges and granted an informal performance evaluation. Other non-monetary incentives including the use of an official certificate of recognition, to enhance staff participation in preparation for the establishment of the Human Development These incentives are often based on informal performance evaluation.
This article focuses on the incentive, this does not mean that other forms of incentive is not important, but because with the <<Equity Incentive Measures for the Administration of Listed Companies>> The introduction of the use of equity incentives in China will be more and more frequently, I believe that there Research needs.
V. Overview of equity incentive
(A What is the equity incentive as opposed to "salary + bonus + benefits" as the basic features of the traditional system in terms of incentive compensation, equity incentives to enterprises and staff in a more firmly established, the strategic development of closer relations Currently, the base salary and annual bonus has been the company can not fully mobilize the enthusiasm of senior management, especially for long-term incentives is difficult to work. The long-term incentive equity incentives as a way to allow the operator or by employees in the form of access to equity , or give the right to enjoy appropriate economic benefits, enabling them to participate as shareholders share the profits �p �p business decisions to take risks, to due diligence for the company's long-term development.
Incentive stock options from the modern enterprise management theory of principal-agent theory. Principal-agent theory of agency costs in the proposed main structure has two parts: one is produced by the asymmetric information costs of monitoring, the other is generated by the information asymmetry moral hazard costs. If, as the principal shareholder develop the most appropriate incentive mechanism, so as an agent for the operators acting in their best interests, then the agency cost will be greatly reduced. only to give a certain percentage of business operators profits so that the operator's operating results and business benefits associated with in order to achieve the operator to maximize profits for shareholders service objectives. and equity incentive function is to allow operators to hold corporate shares, and shareholders with their shares residual profits, personal income to the operators and enterprises linked to economic performance, prompting the company to maximize profits for the service.
Internationally, the equity incentive plan is the more common practice of listed companies. For the general point of view, equity incentive plans can be professional managers, long-term interests of shareholders, the company's long-term development together, to some extent prevent the manager's short-term business behavior, and prevent "internal control" and other acts against the interests of shareholders. In addition, the modern theory and foreign equity incentive proved to improve corporate governance, reduce agency costs �p improve management efficiency and enhance market competitiveness of the company cohesion and play a very active role.
(B equity incentive equity incentive types and methods of application are common in Western countries, including the United States equity incentive tools for the richest and most complete system environment, the following are some typical equity incentive model:
1. Stock Options (Stock Option
Also known as warrants, is actually a call option. Is the object of a company granted a right incentive, incentive object within a specified time (exercise on a pre-determined price (exercise price to purchase a certain number of outstanding shares of the Company (exercise. stock options is only a right but not the obligation, the holder in the stock price below the "strike price" can give up this right, and therefore no risk of the stock option holders.
Prerequisite for the implementation of the assumption of stock options is the company's intrinsic value stocks can be true in the securities market reflects the market as share prices in the effective long term profitability of the company's response, and at least one year of stock options before they can achieve, they were In order to grant stock appreciation of those who spread income earned, will try to maintain the performance of the company's long-term stable growth, the rising value of the stock, thus making long-term incentive stock options have a function.
Stock Options The most popular model in the United States, methods of operation and most specifications. As the 20th century bull market in U.S. stock market 90 years, stock options to senior management to yield huge benefits. Stock options in the international community is one of the most classic, the most widely used equity incentive model. 500 large companies worldwide in 89% of senior managers have implemented a stock option.
2. Restricted Stock Plan (Restricted Stock Plan
Prior to grant incentive target is a certain amount of company stock, but the source of the stock, selling, etc. There are some special restrictions, encouraging object only after a specified period of service and complete the specific performance goals (such as profitability, the only selling restrictions of the stock and benefit from, or has the right to recover the free gift of restricted stock or incentive target purchase price of restricted stock repurchase. In other words, the company will free a certain number of restricted stock grants or more low price sale with senior management, but their right to sell the stock limit. The purpose of the adoption of restricted stock is to encourage senior management to put more time and energy into one or some of the long-term strategic objectives .
3. The Ownership (Executive Stock
The management of the Company held by a certain number of shares and lock a certain period. Incentive stock by the way the object can be donated to the company free of charge, subsidized by the company, was inspired to buy the company forcing investors to buy their own and other beneficiaries . incentive stock after the object has become shareholders of their enterprises, and businesses to risk and share gains. participate in stock ownership plan have been inspired by a real stock, with the corresponding voting rights and distribution rights, and bear the losses and stock price risk, in order to establish enterprises, owners and operators of three of the interests of one community.
4. ESOP (Employee Stock Ownership Plan, ESOP abbreviation
Is funded by the individual employees within the company to subscribe for part of the shares of the Company, and commissioned the company to centrally manage the property rights organization. Employee Stock Ownership for the distribution of employees in the enterprise system provides the conditions for workers and the owners truly reflects the dual identity of the owner. The core is through employee-owned operation, will be the future of employee benefits and business closely linked to form a distribution according to work distribution according to capital combined with a new interest checks and balances. Meanwhile, the employee stock ownership commitment after a certain amount of investment risk, which helps to raise staff awareness of risk, to stimulate long-term investment behavior of employees. As employee-owned business operations not only have a full staff of voice and supervision, but also staff more concerned about the long-term development of enterprises, which is improving scientific decision-making, management, Administration, supervision and distribution mechanisms laid a good foundation.
ESOP is a new organizational form of business property. Under this system, employees not only workers, but also property owners, through the labor and capital together to form a community of interest the double. In this way, even if the ordinary business "wage earners "can become the owner of the assets as" small capitalists "so that" workers who have their shares "ideal.
5. MBO (Management Buy Out, abbreviated as MBO
Also known as "managers leveraged buyout" refers to the company's manager or managers (individual or collective use of loans financing the purchase of the shares of the Company (or options to change the company ownership structure, control structure and asset structure, to achieve business ownership. Meanwhile, it is also an extreme equity incentives, as other incentives are the owner (the property rights of the employee's motivation, and MBO is simply to motivate the subject and object into one, in order to achieve being motivators and business interests, the interests of shareholders a complete unity.
The usual practice is a joint venture company set up management and staff or management employee stock ownership will be funded (usually set up a new company credit finance the acquisition of subject, one or more shareholders through its grant to the former state-owned holding company shares, thereby directly or indirectly the controlling shareholder of the company.
In addition to these forms of equity incentives also include a virtual stock (Phantom Stock, deferred payment plans (Deferred Compensation Plan, stock appreciation rights (Stock Appreciation Rights, Stock Awards (Stock Award, Performance shares (Performance Stock, Performance Units (Performance Unit, the book value appreciation rights (Net Asset Appreciation Right, savings - Stock Participation Programme (Saving-Stock Participate Plan and so on.
(C Comparison of the Equity Incentive Equity Incentive model well reflects the characteristics of Human Capital by enabling operators to gain equity, giving the operator a certain economic rights, enabling them to participate as shareholders, business decisions, share profits, to take risks, to due diligence for the company's long-term development of services, and shareholders and to achieve win-win situation between operators.
Table 1 Comparison between equity incentive model
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Sixth, stock option plans in China, the use of equity incentives is one important form of stock option plans, mainly for corporate executives and senior technical personnel incentives, mostly fast-growing technology companies by the stock option plan, which is Silicon Valley start a cash cow for technology companies create rich, Microsoft, GOOGLE is manufactured by a large number of billionaires stock options. Last year, caused a sensation in China, the Nasdaq search engine - Baidu company and high volume manufacturing millionaires through stock options.
Although foreign equity incentive system has achieved rapid development, China's equity incentive system is just in its infancy, many domestic listed companies active in the exploration, the following stock options have been introduced to China, the results achieved and problems elaborate.
(Incentive stock option plan for a so-called principle of granting stock options is the internal staff of a company within a certain period in the future at a predetermined price or conditions, the right to subscribe for shares, stock options were granted to those who can wait until after the expiry of within the period before pre-determined price or conditions of purchase of shares of listed companies can also give up the right to exercise the stock purchase, in general, non-transferable stock options may not be used for security and repay debt.
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4. Gradually improve the information disclosure system point of view from the United States and other developed countries, listed companies must implement stock option plans in accordance with established rules for disclosure of related information, general information disclosure stock option plans include the following:
(A gift should be given to disclosure. The company shall grant stock options when the number of grant, exercise price, expiration date, and other senior executives receive a public disclosure of the situation and report to the SFC and the Stock Exchange for the record.
(2 lines at the right prompt notice shall be published. Line right before the arrival date, the company announced in advance. Right at the end of the line and share registration is completed, the company shall exercise the number, exercise price and the executives exercised the situation the case of stock options held by the disclosure.
(3 regular financial disclosure reports. Company shall in its annual report, mid-year report disclosed in the Company's stock option plan of the situation and stock options held by executives situation and get the number of other pay. Abroad, there are strict on this one limited, such as: the United States Securities and Exchange Commission in February 1992 require listed companies to disclose details of executive remuneration structure, when the number of stock options exercised and the outstanding value of stock options exercised and other information. In addition, the U.S. Securities and Exchange Commission also requested the company to provide the highest-paid chief executive officer and four other senior management personnel such as the pay past three years.
The above three aspects, in the newly established <<Equity Incentive Measures for the Administration of Listed Companies>> Chapter V of the implementation of procedures and information disclosure requirements also have a corresponding. More and more perfect information disclosure system, but also for the more equity incentives in China paved the way for a good development.
(C the stock option plan is still in China, the problems
1. Governance structure of listed companies because the separation of ownership and management, leading to agency problems, managers and investors that the potential benefits of those inconsistencies, resulting in internal control. State holding listed companies within the outstanding issue is the control that managers actual control of inside directors as the company's business decision-making. As state-controlled listed companies are usually made by the state-owned enterprise restructuring, the former senior management of state-owned enterprises into stock companies the directors and managers, who largely control the enterprise business decision-making, easy to form the insider control the situation. internal control can generally be investigated by three aspects: one is the chairman and general manager of the two-level one, the other is the composition of board members, the third Board of Supervisors The composition of the members. which also exposed the governance structure of listed companies have some defects, mainly as follows:
(1 Listed Companies in Figure 4 are quite serious one in Shanghai and Shenzhen in China Listed Companies One Form of
Chairman and general manager for one of the two level problem, Miss International 2001, 2004, Lin Shanghai and Shenzhen 301 listed companies were the statistics reflect the unity of Listed Companies in China's specific situation, the details shown in Figure 4 .
Figure 4, the statistical state of Listed Companies will be divided into two completely separate (internal directors are not senior executives, including president, vice president, finance managers and other department managers, functional part of the separation of the two (total company directors management of more than 60% of the number and proportion of full unity between the two level (within the company took all of the directors, general manager, deputy general manager, financial manager of the seat. statistics showed that: in Shanghai and Shenzhen 301 companies in the two samples complete one level of 45 listed companies, the separation of the two post some 97 listed companies, two jobs are completely separate 159 listed companies, to 2001, complete separation of the two listed companies post 52.8%, while over 1998 years to improve a lot, but the case of two level-one listed company in China is still very high proportion.
(2 listed companies significantly lower proportion of outside directors constitute a board of directors, is a measure of internal control of listed companies is another important indicator. Because of the special ownership structure of listed companies, the company a higher degree of insider control, and state-owned shares the proportion of listed companies is positively related to internal control. According to sample survey, with outside directors of listed companies accounted for 50.52% of the total sample of companies, of which the largest shareholder of the company complete control of the company, with the ratio of outside directors only 14.3%.
Figure 5 listed companies in China the proportion of internal control
Researchers in 1998 to "internal control system" of listed companies of the extent of insider control, found in its collection of 406 sample companies, the directors of each company an average of 9.7 people, including 3.2 outside directors, inside directors 6.5 , the average degree of internal control 67.0%, and the degree of internal control of listed companies and equity concentration was positively related to the specific form shown in Figure 5.
(3 of Supervisory Board Supervisory Board by the serious internal control is the monitoring of the management operations of the inspectorate to ensure that the business activities of listed companies in a fair, just, do not deviate from the interests of all shareholders. But unfortunately, due to our considerable part of the company's Supervisory Board to undertake a majority of insiders, check the inspectors function is weak.
Part of the survey data in Table 2 reflects the board of supervisors of listed companies controlled by the internal situation.
Table 2 Supervisory control of listed companies in China Form Distribution
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