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State firm executives to get stock options from March 1
By Zheng Lifei (China Daily)
Updated: 2006-02-23 13:52
The government will soon introduce a stock option scheme for managers at
China's overseas-listed State-owned enterprises (SOEs), which analysts say is an
important step in promoting the healthy growth of the companies in the long run.
A management incentive stock option programme for overseas-listed SOEs,
drafted by State-owned Assets Supervision and Administration Commission (SASAC),
will take effect from March 1, an official from SASAC confirmed yesterday. The
official declined to give more details.
Management incentive stock option plans, a frequently used form of executive
compensation in public companies in many countries, grant management the right
to buy a specified number of shares at a stipulated price during a specified
time.
Under the stock option plan, management will be motivated not to indulge in
shortsighted business moves, as their compensation is related to their
companies' performance in the longer term, said Liu Jipeng, director of Company
Studies Centre at Capital University of Economics and Business.
Consequently, Liu said, the stock option plan offers a better incentive than
other plans fostering the company's healthy long-term growth.
"The application of (the management stock options incentive) scheme in
overseas-listed SOEs is an important step to improve their corporate
governance," said Wang Zhigang, director of the Company Reform and Development
Studies at a think-tank affiliated to SASAC.
According to the SASAC's new rule, employees at China's overseas listed SOEs
that are entitled to participate in the stock option plan primarily include
directors (both executive and non-executive directors), senior managers, core
technology professionals and key management personnel.
The rule also stipulates that top-level managers at overseas-listed SOEs
parent companies are only allowed to participate in one listed subsidiary's
stock option incentive scheme.
Launching of the stock option plan, experts say, is a long overdue
undertaking.
"Introduction of the (stock option) plan should have been done long before as
it has existed since the 1970s in public companies in the US and other
countries," said Professor Liu. "Compared with other incentive schemes such as
the annual bonus system, which increases companies' operating costs, the stock
option plan is a better choice."
Introducing a similar plan in domestically-listed SOEs is expected to happen
within this year, Wang said.
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