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 [email protected] or by fax 8610-88061504 before next Tuesday November 22.
(China Daily November 16, 2005)
