What are the incentive objects of the equity incentive plan?

Who is the incentive object in the equity incentive plan? Who should give options? Who should not give options? Futu experts give the following answers.

According to the purpose of the incentive to determine the scope of incentives, the incentive objects are not too many. Equity is a scarce resource, and the limited resources should be allocated to the most valuable objects for the realization of the company's current development plan.

First of all, determine the purpose of the equity incentive, that is, the purpose. Companies of different nature and size have different purposes for implementing equity incentives at different stages of development, some are to attract and retain core technical employees and management backbones who have a direct impact on the company's development, some are to reduce the company's cash flow pressure and labor costs, some are to attract external talents, some are to improve the company's performance, and some are to return to old employees and mobilize the enthusiasm of old employees.

Secondly, according to the purpose of the incentive, the incentive object is locked, that is, the person. Usually, the incentive object is the core technical personnel and management backbone who have a direct impact on the development of the company, and the company can expand or adjust the scope of the incentive and lock the incentive object according to the purpose of the equity incentive.

If the purpose of the incentive is to reduce the company's labor cost, the incentive object should include the current employees who intend to reduce their salaries or the new employees who intend to reduce their salaries; If the purpose of the incentive is to attract external talents and improve the company's performance, the incentive targets should include the industry talents to be recruited and the core employees of the company's core business departments.

According to the purpose of equity incentives, the scope of incentives can be accurately located, and the precise positioning of incentive objects is more conducive to achieving the purpose of equity incentives.

Theoretically, the object of equity incentive is the trustee of the company, that is, the actual operator and representative legal person of the company, and the management of the company. They are the key and core operators to improve the company's operating performance. According to the Measures for the Administration of Equity Incentives of Listed Companies, the incentive objects of the equity incentive plan must be the employees of the company, and the specific objects shall be determined by the company according to actual needs, and may include directors, supervisors, senior managers, and core technical (business) personnel of the listed company.

and other employees that the company deems incentivized. However, personnel with tainted records cannot be the target of incentives, so as to urge senior executives to be diligent and conscientious, in order to protect the independence of independent directors, the "Administrative Measures" clearly stipulate.

The recipients of equity incentives shall not include independent directors. In addition, listed companies with false financial reports and major violations of laws and regulations cannot implement equity incentive plans, and it is under the impetus of this act that employee stock ownership plans have gained great development in the United States.

The objects of equity incentives include the following types of honorifics: 1. Shen drafted directors, senior managers, core technical personnel or core business personnel of listed companies; 2. Other employees who the company believes should be motivated and have a direct impact on the company's operating performance and future development, but excluding independent directors and supervisors; 3. Do not belong to the personnel who are not allowed to be the object of incentives.

[Legal basis].

Article 8 of the Measures for the Administration of Equity Incentives of Listed Companies (2018 Amendment) may include the directors, senior managers, core technical personnel or core business personnel of the listed company, as well as other employees who the company believes should be incentivized and have a direct impact on the company's operating performance and future development, but shall not include independent directors and supervisors. Foreign employees serving as directors, senior managers, core technical personnel or core business personnel of listed companies may be eligible for incentives. Shareholders or actual controllers who individually or collectively hold more than 5% of the shares of a listed company, as well as their spouses, parents and children, shall not be eligible for incentives.

Who is the equity incentive for? The core principle of equity incentive distribution is to give to those who are optimistic about the company's future and are willing to grow with the company. In the early stage, the team has fewer people and more things, and everyone is the core backbone, so we will consider increasing the scope of incentives so that everyone has the mentality of entrepreneurial ownership, which is conducive to improving team cohesion.

When the number of people in the company increases, it is more important to identify and retain those talents who have the ability and potential to be missed.

What are the targets of equity incentives? Judging from the survey data of Cracks, less than 3 of the research companies have implemented full shareholding, and not every employee holds shares, but employees at every level have the opportunity to hold shares, and nearly seventy percent of the companies will focus on senior management, middle-level core positions, and professional and technical backbones, because they understand the company's development better, need to have long-term thinking, and will recognize the value of shares.

Legal analysis: Incentive targets may include directors, senior managers, core technical personnel or core business personnel of listed companies, as well as other employees who the company believes should be motivated to have a direct impact on the company's operating performance and future development, but should not include independent directors and supervisors. Foreign employees working in China who serve as directors, senior managers, core technical personnel, or core business personnel of listed companies may become incentive targets.

Legal basis: Trial Measures for the Implementation of Equity Incentives by State-Controlled Listed Companies (Domestic) Article 15 The cumulative equity of the company granted to any incentive object of a listed company through all effective equity incentive plans shall not exceed 1% of the total share capital of the company, except for those approved by a special resolution of the general meeting of shareholders.

1. Market selection mechanism.

The adequate market selection mechanism can ensure the quality of managers and have a long-term restraining and guiding effect on managers' behavior. It is difficult for managers identified by administrative appointments or other non-market options to align with the long-term interests of shareholders and to make incentive and restraint mechanisms work. There is no basis for providing equity incentives to such managers, and it is not in the interests of shareholders.

The professional manager market provides a good market selection mechanism, a good market competition state will eliminate unqualified managers, in this mechanism the value of managers is determined by the market, managers in the process of operation will consider their own value positioning in the manager market and avoid speculation, laziness and other behaviors. In this environment, equity incentives can be economical and effective.

Second, the market evaluation mechanism.

Without an objective and effective market evaluation, it is difficult to make a reasonable evaluation of the value of the company and the performance of the managers. In the case of excessive market manipulation, excessive intervention and social audit system can not ensure objectivity and fairness, the capital market is inefficient, it is difficult to determine the long-term value of the company through the stock price, and it is difficult to evaluate and motivate managers through equity incentives. Without a reasonable and fair market evaluation mechanism, it is impossible to talk about managers' market choices and incentive constraints.

As an incentive tool, equity incentives are of course unlikely to play a role.

3. Control and restraint mechanism.

The control and restraint mechanism is a restriction on the behavior of managers, including laws, regulations and policies, company regulations, and the company's control and management system. A good control and restraint mechanism can prevent managers from detrimental to the company's behavior and ensure the healthy development of the company. The role of the restraint mechanism is irreplaceable by the incentive mechanism.

The problem of the operators of some state-owned enterprises in China is not only a problem of incentives, but also a problem of constraints to a large extent, and strengthening the building of the corporate management structure will help improve the efficiency of the restraint mechanism.

Fourth, the comprehensive incentive mechanism.

The comprehensive incentive mechanism guides the behavior of managers through comprehensive means, including salary, bonus, equity incentive, promotion, training, welfare, good working environment, etc. Different incentive methods have different incentive orientations and effects, and the best incentive methods corresponding to different enterprises, different managers, different environments and different businesses are also different. Companies need to design incentive combinations for different situations.

The form and size of equity incentives depend on the comprehensive consideration of incentive costs and benefits.

Fifth, the policy environment.

** It is obligated to provide policy support for the formation and strengthening of various mechanisms through laws, regulations, management systems, etc., and create a good policy environment, and inappropriate policies will hinder the role of various mechanisms. In terms of market environment, it is also necessary to create a good policy environment by strengthening capital market supervision, eliminating unreasonable monopoly protection, separating government from enterprises, and reforming the appointment of operators.