China-Singapore Jingwei, May 10 (Lin Wansi) Recently, the issue of sky-high compensation for executives of listed companies has repeatedly caused heated discussions in the market.
From the perspective of various industries, the compensation of executives in the pharmaceutical industry is significantly higher than that in other industries.
Taking A shares as an example, Wind data shows that in
2020, among the top 50 companies with the top three directors' remuneration in listed companies, 14 are pharmaceutical companies, accounting for 28%; among the top 50 companies with annual chairman remuneration, 13 Home is a pharmaceutical company, accounting for 26%.
It is worth noting that many pharmaceutical companies still give executives a lot of equity incentives even when their performance has already suffered losses.
Does this affect business operations?
Where does the "high salary" come from?
The executive compensation of listed companies generally refers to the compensation of directors, supervisors and senior management personnel.
Generally, executive compensation consists of salaries, allowances, bonuses, performance-linked bonuses, tenure incentives, equity-settled share option expenses, and pension plan contributions.
Although some pharmaceutical companies have fallen into losses, executive compensation still exceeds 100 million yuan.
In 2021, Baixinan-B will have a loss of 410 million yuan during the year, an increase of 20.59% from the loss of 340 million yuan in 2020. Innovent Bio will have an adjusted loss of 2.243 billion yuan in 2021, an increase of 12.54% from the loss in 2020.
During the same period, Wang Li, chairman, CEO and general manager of Baixinan-B, and Yu Dechao, chairman of the board of directors and CEO of Innovent this year, received over 100 million yuan in remuneration, reaching 192 million yuan and 128 million yuan respectively.
It is understood that Yu Dechao, 58 years old this year, has invented three "National Class 1 New Drugs" and promoted the development and marketing of new drugs.
Wang Li, 53 years old, has over 24 years of experience in the interventional cardiovascular medical device industry.
Both are founders of the company, and both are mainly responsible for the overall strategic planning, business direction and operational management of the group.
Sino-Singapore Jingwei checked past data and found that Wang Li and Yu Dechao's salaries in 2020 were 61 million yuan and 105 million yuan respectively.
Compared with the annual salary in 2020, in 2021, Wang Li's annual salary will increase by 214.75% year-on-year, and Yu Dechao's annual salary will increase by 21.90% year-on-year.
Sino-Singapore Jingwei noticed that both Wang Li and Yu Dechao's hundreds of millions of annual salaries benefited from the largest share of equity incentives in the annual salary composition.
According to the 2021 annual report, 191 million yuan of Wang Li's annual salary belongs to "equity-settled share incentive expenses", accounting for more than 99% of his 2021 annual salary.
Yu Dechao's annual salary of 102 million yuan comes from "share-based payment expenses", accounting for nearly 80% of his personal annual salary.
However, from the current point of view, the high salaries of executives have not been exchanged for high growth in the performance of listed companies.
In the annual report, Innovent explained that the increase in losses during the year was mainly due to continued investment in research and development.
According to the annual report, Innovent Bio was established in 2011 and went public in 2018. The company develops, produces and sells high-quality innovative drugs for the treatment of major diseases such as tumors, metabolic diseases, and autoimmunity. Currently, 6 products have been commercialized.
Established in 2014 and listed at the end of 2021, Bioxin Bio is an interventional cardiovascular device company. At present, the company has a total of 9 products under development, but no products have been commercialized.
Does the executive's equity incentive affect the company's operation?
On May 9, Sino-Singapore Jingwei sent letters to Baixinan Biology and Xinda Biology in response to questions such as whether the company's equity incentives are normalized and whether it has an impact on the company's operations under the loss of money.
On May 10, Cinda Biology replied to Sino-Singapore Jingwei that employee compensation consists of two parts: cash paid wages (including performance bonuses and benefits) and stock option incentives (if any).
Yu Dechao's actual income in 2021 is 26.22 million yuan, including wages, bonuses and cash income and some company-level tax expenses.
The non-personal cash income of RMB 101.7 million disclosed in the annual report is
actually mainly the expenses recognized in the 2021 financial books in accordance with the requirements of international accounting standards by granting Yu Dechao options and restricted stocks after the company goes public. Influence.
Cinda Biology explained in its reply that options and restricted stocks are the company's incentive plan approved by the board of directors and the general meeting of shareholders. Incentives, such incentives are all non-cash and the actual exercise of the rights also needs to meet the corresponding conditions and service periods.
According to the accounting requirements of accounting standards, the cost of granting options and restricted stocks recorded in the financial book must be reflected in the annual report, that is, personal non-cash paper income.
The fair value of options and restricted stocks granted after the company goes public due to a sharp rise in stock prices higher, so the corresponding personal non-cash paper income is higher.
However, based on the current stock price estimate, the value has dropped significantly.
"Equity incentive is a long-term incentive mechanism implemented by enterprises and one of the most commonly used incentive methods for listed companies. This type of equity incentive does not occupy the company's cash, and the grant and evaluation mechanism is linked to the long-term development of the company, and is determined by the board of directors and remuneration. The review and approval of the committee has a positive impact on the company's operations." Innovent said.
In an interview with Sino-Singapore Jingwei, Lei Juan, a lawyer from Tianda Republican Law Firm, said that
"equity-settled share expenses" in the annual salary of listed company executives are equity incentives, not cash incentives, and will not lead to a reduction in the company's cash flow. .
Cash incentives will directly lead to a reduction in the company's cash flow, which may adversely affect the company's operations when the company is in a loss and cash flow is tight.
As of press time, Sino-Singapore Jingwei has not received a response from Baixinan Biology.
However, in recent years, it has gradually become the norm in the capital market that executives of listed companies are sitting on generous equity incentives.
According to the "2021 Equity Incentive Research Report" jointly released by Futu, Willis Towers Watson and Maimai, from the perspective of salary structure, the proportion of CEOs' variable salary in Hong Kong and US-listed Chinese companies in the overall salary in 2020 will continue to remain at More than 60%, of which long-term incentives account for about 45% of the overall compensation.
About 69% of the overall compensation of CEOs of Chinese companies listed in Hong Kong consists of variable compensation, and long-term incentives account for about 45% of the overall compensation.
However, experts warn that some actual controllers will use equity incentives to hollow out corporate profits.
Gong Tao, chairman of Shenzhen Zhongjin Huachuang Fund, told Sino-Singapore Jingwei that
under normal circumstances, when the actual controller holds most of the voting rights and actual management rights of the listed company, most of the current profits can be motivated through equity incentives. To yourself, in disguise, sacrificing the interests of minority shareholders.
Luo Ling, the fund manager of Shanghai Congrong Investment Management Co., Ltd., has nearly ten years of investment experience in the pharmaceutical field. He told Sino-Singapore Jingwei that from the perspective of investors, it is an important consideration for pharmaceutical companies to reserve equity incentive pools before starting investment. factor.
"Emerging pharmaceutical companies are still in the stage of burning money. I think it is inappropriate for the management to take so much." Luo Ling said.
Li Guoping, a professor at the Central University of Finance and Economics, also pointed out in an interview with Sino-Singapore Jingwei that
the loss on the book of the company caused by the cost of equity incentives may affect the company's stock price, which may affect investors' confidence in the company, which may affect the company's operations.
For example, large losses on the books make it difficult for businesses to finance.
Secondly, Li Guoping pointed out that from the data, the reason why the absolute amount and proportion of executive compensation is high is mainly from the equity incentives for executives, and the exercise price of equity incentives is too low.
If the exercise constraints in terms of business performance and other aspects are also too low, then the essence of equity incentives is to convey the interests of executives, and it is to hollow out the company in disguise.
Li Guoping added that there is currently no objective standard for whether the exercise price of equity incentives is too low, but the pricing of private placements can be referred to.
He pointed out that the price of private placement is usually not lower than 90% of the average price of the first 20 to 60 days, and the equity incentive can be a little lower than this price, but the exercise price of equity incentives of most companies is currently 50% of the market price, and some The company's strike price is 0.
Li Guoping observed that there are three problems with equity incentives in China's capital market. First, the incentive objects are basically executives. Second, the price is too low. Third, the performance evaluation conditions are too low.
For example, he said that the performance evaluation of equity incentives of some listed companies is based on 2020, and 2020 is the worst year for these companies in recent years, resulting in equity incentives that have become de facto executive benefits, or Reduced to conveying benefits to executives.
"Some listed companies use the dividend ratio as one of the assessment conditions. This condition is very absurd, because the amount of dividends is almost decided by the board of directors. Moreover, the dividend ratio has nothing to do with performance, nor is it the management's operating performance." Li Guoping Say.
The improvement of the compensation system requires independent directors and the board of supervisors to play a role
In the opinion of the above-mentioned experts, executive compensation should mainly be determined by the market, and it is difficult for the regulatory authorities to formulate a system for compensation issues.
According to Article 8 of the "Measures for the Management of Equity Incentives of Listed Companies", "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 become incentive objects."
However, Li Guoping said that, in practice, some family-controlled listed companies circumvent the above-mentioned regulations through family members' dispersed shareholding (each person holds less than 5% of the shares, but the total number of shares is far more than 5%). Equity incentives for family members serving as executives.
"At the same time, some key executives of listed companies already have high annual salaries and bonuses, and the incentives for these key executives are actually quite sufficient. Whether they need to be given equity incentives also needs further consideration." Li Guoping said.
So, how should the compensation system of listed companies be further improved?
Gong Tao pointed out that a good equity incentive plan must put power in a cage.
"The proportion of equity incentive expenses to the company's profits must be controlled, and the specific proportion should be adjusted according to different industries, business conditions and stages of the enterprise, but the core is how to restrain the power of compensation plan and equity incentive plan formulation. How should the power of shareholders or actual controllers be restrained?"
Gong Tao pointed out that the pharmaceutical industry is a technology-intensive industry and is highly dependent on talents. If the actual controller serves as a CEO or a core technical executive, and is indeed an indispensable talent for the company, then the company will use most of the compensation through equity incentives. Ways to give executives is the best way to bind talent.
In addition, the intellectual property rights of the main products of the pharmaceutical industry, especially the traditional Chinese medicine industry, also determine the compensation and equity incentive plans,
so when analyzing some cases, it is necessary to pay attention to the above situation, "it does not mean that equity incentive expenses account for a high proportion of management expenses (administrative expenses). It must be bad, and research must be differentiated.”
Liu Chunsheng, an associate professor at the Central University of Finance and Economics, told Sino-Singapore Jingwei that executive compensation should be linked to its performance contribution. On the other hand, the external supervision mechanism must play a role, and the regulatory authorities should warn and pay attention to the abnormally high executive salary of listed companies in a timely manner.
Li Guoping said that the equity incentives of many listed companies are obviously unreasonable, but they can still obtain the consent of the compensation committee of the board of directors and the entire board of directors, which shows that there are serious problems in the corporate governance of enterprises, especially independent directors have become decorations.
He also suggested that regulators need to make efforts to improve the governance of listed companies and the system of independent directors.
Second, it is also necessary to raise awareness of protecting their own rights and interests through investor education, especially institutional investor education.
(The opinions in this article are for reference only and do not constitute investment advice. Investment is risky, and you need to be cautious when entering the market.)