China Securities Regulatory Commission (CSRC),
the market watchdog, yesterday issued a draft circular providing
standards for domestically listed companies on offering share
incentives to board directors, supervisors, managers and other
company staff.
A listed company can offer a maximum of 10 percent of its shares
to well-performing staff as a bonus and an individual can be
offered no more than a 1 percent of this, according to the
circular.
The share bonus, or bonus in the form of shares, can be derived
from three sources: reserves from a public offering, specially
allocated shares for senior or high-level managers of the company
or shares bought back from the market.
In addition, board directors or senior managers who receive
share bonuses and then leave the company are prohibited from
selling them until at least one year after their resignation.
The other incentive proposed by the regulator is a share option,
which gives the holder the right but not the obligation to buy or
sell a stock at an agreed price during a certain period of time or
on a specific date. Further, if they choose to exercise their
option rights, holders are required to do so at least one year
after issuance of the share options.
When issuing share options to company staff, the buying or
selling price will be the higher of either the average share price
from the former 30 trading days before the share option issuance,
or the share price from the day before the issuance.
Managers or staff with a bad track record will not be offered
incentives, a strategy to encourage management to behave
responsibly at all times.
Listed companies found to have fiddled with their books or to
have committed other serious malpractices are prohibited from
offering incentives to staff.
A company's incentive proposals should be designed by its
emolument commission and then passed by its board of directors and
at the general shareholders' meeting.
The regulator has asked listed companies to lay out clear
standards and procedures for the incentives.
Strict information disclosure requirements are also stipulated
in the circular, including the publication of management decisions
and implementation procedures of the incentive plans.
For the moment, only listed companies that have implemented
share merger reforms making all shares tradable, can offer
incentives to their staff.
There are currently no rules in place covering listed companies'
incentive programs, and even though some companies have been
implementing such practices, many of their bonuses were considered
too high.
CSRC said that with the revised Corporate Law and the A-share
reform, the right conditions are being created for the commission
to work out the rules for a share incentive system for listed
companies.
The State asset administrator is also currently working on
guidelines for a share incentive program for the country's
state-owned enterprises (SOEs) as part of SOE reform.
CSRC said public opinion is welcome by email ssb@csrc.gov.cn or by fax
8610-88061504 before next Tuesday November 22.
(China Daily November 16, 2005)