Low-priced, low-assessment employee stock ownership plans are appearing frequently, and listed companies are becoming more "generous" for employee benefits.
According to statistics from a reporter from the Securities Times, a total of 264 A-share companies will launch employee stock ownership plans in 2022, a year-on-year increase of 18%.
Among them, 35 companies have employee shareholding prices of no more than 1 yuan per share, doubling year-on-year, and 21 companies plan to launch a 0-yuan shareholding plan.
At the same time, the market's doubts about the "free gift" of low-priced employee stock ownership plans have also intensified.
About half of the listed companies that announced a 0-yuan employee stock ownership plan in 2022 received a letter of concern from the exchange, asking the company to explain the fairness and rationality of the plan and whether there is any benefit transfer.
The employee stock ownership plan is an important medium and long-term talent incentive method.
However, many of the ultra-low-priced employee stock ownership plans that have appeared frequently in recent years lack reciprocal assessment and restraint mechanisms. While infringing on the interests of shareholders, they have also failed to achieve inclusive benefits for employees, and have become a means for a small number of people to grab benefits.
Employee shareholding becomes a sweet pastry
The employee stock ownership plan is an important tool for the company to stabilize the talent team and optimize the governance structure.
Compared with equity incentives, employee stock ownership plans have a wider coverage, are subject to looser supervision, and are more flexible in terms of pricing, performance appraisal, and lock-in period.
In June 2014, the China Securities Regulatory Commission issued the guidance on standardizing employee stock ownership plans for the first time, which ignited the enthusiasm of listed companies to implement employee stock ownership plans.
In the whole year of 2015, a total of 277 companies issued employee stock ownership plans (statistics based on the plan day of the board of directors, the same below), setting off the climax of the first wave of A-share employee stock ownership plans.
However, the heat wave of the first wave of ESOPs did not last.
With the end of the bull market, the number of listed companies issuing plans has decreased year by year.
In 2019, only 101 companies launched plans, a 63% drop from 2015.
It was not until 2020 that the enthusiasm of listed companies to implement employee stock ownership plans gradually recovered. The number of companies that issued plans in 2021 once again exceeded the 200 mark, and this number further increased to 264 in 2022, approaching the peak in 2015.
From a high-profile debut to few people interested in it, to becoming popular again, the rise and fall of the return on shareholding of participants may be an important reason why the popularity of employee stock ownership plans has changed several times.
For a long time, "subscription is a quilt" and "specially cheating one's own people" have become the labels of employee stock ownership.
According to the reporter's statistics, among the employee stock ownership plans implemented before 2019, floating losses accounted for as much as two-thirds after one year of implementation, and about 15% of the company's share prices were directly cut in half.
Some employee stock ownership plans implemented in the form of trust plans have certain leverage, and the drop in stock prices once triggered the "explosion" of employee stock ownership plans of many companies, resulting in the loss of the participating employees.
2019 is a watershed year for the overall profitability of employee stock ownership plans.
According to the reporter's statistics, in the employee stock ownership plan implemented in 2019, the proportion of unrealized losses dropped to 31% after one year; in 2018, this proportion was as high as 68.8%; More than 60% of them maintain a floating profit after one year, and the employee stock ownership plan is no longer a burden for the participants (Figure 1, see version A1).
A certain profit margin can ensure that the employee stock ownership plan plays an incentive and welfare role.
Unlike the steady increase in the number of employee stock ownership plans, the A-share equity incentive plan in 2022 has decreased by 8.41% year-on-year.
He Zhicong, senior partner of Rongzheng Consulting, believes that the increase in employee stock ownership plans is also related to changes in the economic environment. "Listed companies are facing the pressure of performance growth and the dilemma of retaining employees. Conventional equity incentive plans have rigid requirements, including pricing and performance appraisal. , in the current economic environment, the expected incentive effect may not be achieved.”
'Fracture scheme' surge
Evolving Benefits Program
In addition to being affected by the market environment, changes in the stock subscription price in the employee stock ownership plan play a key role in the level of the rate of return.
Calculate the discount based on the ratio of the proposed issue price in the employee stock ownership plan draft to the closing price of the board of directors’ plan. The average discount range of the employee stock ownership plan launched from 2015 to 2018 is within 10%, and the discount range after 2020 will exceed 30%. %, reaching 38% in 2022.
That is to say, for the employee stock ownership plan launched after 2020, participating employees can buy it at an average price of 40% to 30% off (Figure 2).
Before 2020, the pricing of employee stock ownership plans is usually based on the average price of the 20 trading days before the pricing base date or the average price of repurchased shares, with a small discount.
In the past three years, the employee stock ownership pricing method has become more flexible, and while the purchase discount rate has become higher and higher, the number of "fracture price" employee stock ownership plans has increased sharply.
In 2022, a total of 35 companies launched ultra-low-priced employee stock ownership plans of less than 1 yuan per share, of which 21 employee stock ownership plans appeared "0 yuan purchase" (Table 1).
If there is no equal assessment and restraint mechanism, these employee stock ownership plans will completely lose their incentive effect and become a complete employee benefit.
Some listed companies said that from the perspective of the effectiveness of employee incentives, affected by market price fluctuations, employees may not be able to obtain positive returns corresponding to their performance contributions. Equivalent cash rewards ultimately lead to poor incentive effects.
For the purpose of maximizing the incentive effect of the participants, the company chooses to implement a low-price employee stock ownership plan.
The cabbage price plan, who is generous?
According to the regulations, the stocks used in the employee stock ownership plan mainly come from four ways: repurchase by listed companies, purchase in the secondary market, subscription of non-public issuance of stocks, and gift from shareholders.
In the A-share market, repurchase by listed companies is currently the most common choice.
In the draft employee stock ownership plan to be released in 2022, 73% of the stock comes from repurchases by listed companies in whole or in part.
From this perspective, the cost of the repurchase employee stock ownership plan is borne by the listed company.
However, some listed companies whose profitability is worrying still spend "huge sums" to repurchase shares, and then implement employee stock ownership plans at low or zero consideration. This will inevitably affect the interests of shareholders and is not in line with employee stock ownership plans. The principle of risk sharing and benefit sharing advocated by the company, employees and shareholders.
According to the statistics of the Securities Times reporter, among the employee stock ownership plans with a discount of more than 50% in the transfer price in 2022, 16.2% of the companies will have a net profit loss in 2021, and some have even lost money for many years.
The launch of a low-priced repurchase employee stock ownership plan at this time will undoubtedly further increase the company's costs and make the company's performance worse.
In December 2022, Shouhang Hi-Tech's 0-yuan employee stock ownership plan was rejected at the general meeting of shareholders with more than 90% of the votes against it.
Shouhang Hi-Tech has been losing money for two consecutive years. In the first three quarters of 2022, it will still lose 122 million yuan. In addition, the incentive objects have previously reduced their holdings in the secondary market. This employee stock ownership plan has been questioned by investors as being a hollow company. .
In the same month, another company, Golden Shield, implemented a 0-yuan employee stock ownership plan. Although it was approved at the general meeting of shareholders, 67.89% of the small and medium shareholders voted against it.
There are many white horse stocks that have been questioned due to the launch of the "fracture price" employee stock ownership plan.
In September 2022, Zhongju High-tech’s half-price employee stock ownership plan was rejected by 58.33% of the votes against it at the general meeting of shareholders, and 85.93% of the small and medium shareholders voted against it.
Several directors of the company also raised objections in the board vote, for reasons including that the shareholding plan will bring hundreds of millions of yuan in losses to the company, the nature of benefits is greater than the nature of incentives, and the strengthening of controlling shareholders' control rights will affect the interests of small and medium shareholders.
As an incentive form with welfare attributes, it is reasonable for employee stock ownership plans to have a certain discount.
However, if the discount is too high, it will inevitably cause the market to question the original intention and fairness of the plan.
Under the tilt of interests, who benefits the most?
Unlike equity incentives that are only available to directors, executives, core personnel and a few backbones, employee stock ownership plans can be participated by all company employees and are universal.
Listed companies can independently choose the coverage of the shareholding plan, and determine the shareholding amount and proportion of various objects on their own. After confirmation by the board of directors, it can be voted at the general meeting of shareholders.
However, the reporter combed and found that some low-priced employee stock ownership plans, the share subscription ratio is seriously tilted towards the directors, supervisors and senior management groups (Table 2).
Among the more than 200 plans with a discount rate of more than 50% released since 2020, 34 plans have a subscription rate of more than 50%.
Due to the small number of directors, supervisors and senior executives, this kind of benefit-oriented employee stock ownership plan can easily become a tool for individuals to grab benefits.
For example, in ST Zhongjia, which announced the employee stock ownership plan plan in November 2022, 4 of the 7 subscribers are directors, supervisors and senior managers, and the subscription ratio is as high as 92%. In March 2009, he became the vice president of the company.
Unlocking stocks only sets individual assessment targets, not company assessment targets.
Another example is Yingying Network. The company has released three phases of employee stock ownership plans from 2020 to 2022. Based on the closing price on the day of the plan, the corresponding market value exceeds 300 million yuan.
In the third-phase employee stock ownership plan, directors, supervisors and senior executives subscribed for as much as 76% of the total share, and the discount rate for the third-phase transfers exceeded 50%.
According to the latest employee stock ownership plan released in November 2022, the share subscription ratio of chairman Jin Feng alone accounted for 31.63% of the total share in the current period.
Rather than being called an employee stock ownership plan, it might as well be called an executive incentive plan.
The equity incentive plan has clear requirements on the share transfer price and performance appraisal, while the employee stock ownership plan is more flexible in operation, and the employee stock ownership plan is greatly inclined to directors and executives. Avoid the assumption of more stringent authorization requirements and stricter supervision in equity incentives.
The performance appraisal releases the water, and the incentive becomes a free gift?
It is undeniable that listed companies have the right to reward outstanding employees through employee stock ownership plans, but the distribution of benefits should not be based on the premise of sacrificing the interests of shareholders.
Especially for low-priced employee stock ownership plans, it is even more necessary to check the performance appraisal settings and set up corresponding restraint mechanisms.
However, in the current low-priced employee stock ownership plans, a considerable part of the performance evaluation standards set are relatively low, with various indicators, and some companies even do not set any unlocking evaluation at all.
In the employee stock ownership plan concern letter issued by the stock exchange, the rationality of performance appraisal standards is an important concern (Table 3).
In 2022, Tongyuan Petroleum, Fuguang Co., Ltd., Tongda Co., Ltd. and other draft employee stock ownership plans of less than 1 yuan per share did not set any performance evaluation standards.
Most of these companies had unsatisfactory performance before the introduction of employee stock ownership plans.
For example, Tongyuan Petroleum, the total cost of the company's share repurchase for the employee stock ownership plan is about 9.28 million yuan, while the company's net profit in 2021 is only 14.585 million yuan.
Fuguang's net profit has declined for two consecutive years in 2020 and 2021, and its net profit in the first three quarters of 2022 will continue to decline by 39%. Tongda's net profit in 2021 will even decline by 80%.
In addition to the situation where the company’s performance evaluation indicators are not set, there are also some employee stock ownership plans that have been questioned because the evaluation standards are too loose, including the set performance growth rate is too low, the year with a sharp decline in performance is selected as the base period, and the evaluation unlocking standard is selected. Non-performance indicators such as production capacity, etc.
Under the loose unlocking standard, successfully completing the short-term performance appraisal target has become a high probability event.
Even so, some listed companies directly lowered the assessment standards when they found that they failed to meet the performance assessment goals, which made the already loose assessment criteria further lose their seriousness.
According to rough statistics from the reporter, in 2022, more than 5 companies have issued announcements on the adjustment of performance appraisal targets.
In May 2022, Gree Electric issued an announcement, lowering the performance assessment standards for the first phase of the employee stock ownership plan released in June 2021. After the adjustment, the net profit standard to be achieved in 2022 is about 3.6 billion yuan lower than before the adjustment.
Previously, Gree Electric's employee stock ownership plan was controversial because its interests were too skewed to the executive group, which once caused the stock price to plummet. Employee stock ownership plans have been more questioned, and corporate credibility has been damaged.
Hidden benefit delivery path
The intention of listed companies to implement employee stock ownership plans is to establish and improve the benefit sharing mechanism between workers and owners, improve corporate governance, and enhance team cohesion and corporate competitiveness.
However, the flexibility of the employee stock ownership plan and the relatively loose supervision not only increase the freedom of listed companies, but also leave room for benefit transfer.
Based on the main controversial points of the low-priced ESOP mentioned above, it is not difficult to outline the possible hidden benefit transmission path of the ESOP: Listed companies implement ultra-low-priced ESOPs with real money repurchased shares, And the subscription ratio is tilted towards a small number of directors, supervisors and senior managers, and finally a loose share unlocking assessment index is set, and the interests of the company and shareholders are violated.
From the perspective of lock-up time, about 21% of the highly discounted employee stock ownership plans implemented in 2022 have a lock-up period of 12 months for all shares, and most of the remaining plans will be unlocked in batches within three years.
On the whole, the short-term characteristics are obvious, which is not conducive to the realization of the long-term incentive goal of the employee stock ownership plan, and it is easy to put pressure on the stock price after the shares are unlocked.
Benefit transmission is an important issue of regulatory concern. However, in the face of inquiries in the regulatory concern letter, many listed companies gave templated and routine responses, which seemed to be "playing Tai Chi" and did not serve well. Investors puzzled.
For example, when a company replied to the exchange about the reasons for not setting a short-term performance appraisal target, it said, "The company has not set a short-term performance appraisal unlocking target, which is more conducive to increasing the recognition of the company by core backbone employees, and is conducive to guiding employees to continue to pay attention to the long-term performance of the company. The realization of strategic goals, rather than short-term performance and stock price fluctuations, is conducive to achieving the long-term goal of aligning the interests of the company, shareholders and employees, accelerating the realization of the company's strategic goals, and bringing more efficient and lasting returns to the company and shareholders."
Another company responded to why it set the transfer price at 0 yuan, saying, "The company accepts the shares repurchased by the company at 0 yuan per share, which reflects the company's confidence in the long-term future development."
Many companies stated in their reply announcements that the implementation of the 0-yuan employee stock ownership plan is based on the cases of other companies that have implemented it.
These replies obviously lack factual support and do not conform to the cognition of most investors. It is difficult to dispel investors' doubts about the motivation for implementing the low-priced employee stock ownership plan. The reply to the letter of concern seems to be just a formality.
Zheng Zhigang, a professor of finance at the School of Finance and Finance, Renmin University of China, believes that the zero-cost employee stock ownership plan is not without costs, and it may also be a hidden cost for the company's future stable and sustainable operations, including the behavior of a small number of insiders encroaching on the legitimate ways of diversifying the interests of external shareholders .
Regarding the 0-yuan employee stock ownership plan currently appearing in A shares, Zheng Zhigang put forward two suggestions: one is to restore the original design incentive intention of the employee stock ownership plan, so that employees not only pay the holding cost, but also need to set strict unlocking conditions; The second is to give small shareholders the possibility and ways to prevent the encroachment and transfer of interests by setting a higher threshold for passing the vote at the general meeting of shareholders.
Rongzheng Consulting He Zhicong said: "From the perspective of the sustainable development of listed companies, talent incentives should be more inclusive and more personalized, rather than risks. At the level of system design and supervision, the main prevention is the risk of benefit transfer, such as whether the actual controller Can participate, whether a large proportion of executives can participate, and if it is a bonus exchange, further information should be disclosed on the rules for withdrawing rewards.”
"Zero-cost" employee stock ownership plan should be premised on fairness
In these years of rapid Internet development, major companies such as Tencent, JD.com, and Xiaomi often spend hundreds of millions of yuan on employee equity incentives, and even directly distribute stocks to employees, which is full of arrogance.
Employees are satisfied, and spectators are envious. This share award is mostly interpreted as a governance method that cares for employees and realizes the binding of interests and win-win results.
In contrast to the A-share market, since 37 Interactive Entertainment first launched the 0-yuan employee stock ownership plan in 2019, there have been constant controversies about the 0-yuan employee stock ownership plan, and high-quality leading companies are hardly immune.
It is also a listed company that promotes employee benefits. Why is public opinion polarized?
In contrast, it is not difficult to see that the focus of controversy on the employee stock ownership plan is not the low price or 0 yuan itself, but the fairness of the plan.
First, whether the program itself is fair.
Taking Tencent as an example, the company's equity incentive plan combines key incentives and inclusive rewards. From 2020 to 2022, a total of 10 employee share incentive plans have been launched. 20%, and the least number of grants is 2,400, and all of them are non-related persons, ie excluding directors and major shareholders.
However, in the employee stock ownership plan of less than 1 yuan/share implemented by A-share listed companies in the past three years, the average ratio of the number of grants to the total number of employees is about 6%, and the average subscription ratio of directors, supervisors and senior managers is 22.5%. Difference.
This calls into question the motives behind the implementation of ESOPs.
Second, whether the plan violated the interests of shareholders.
For those employee stock incentive plans that are recognized by the market, the company has maintained stable performance growth for a long time, and most of them are accompanied by generous dividends.
Shareholders have benefited from the company's growth for a long time, so they naturally have more trust in the incentive effect of the company's employee stock ownership plan and in the company's governance.
Among the companies that implement low-priced employee stock ownership plans for A shares, many companies not only have poor performance and low dividends, but also blindly lower the standards in performance evaluation, and at the same time lower investors' expectations for the company's future growth.
It can be seen that as long as most shareholders have effectively shared the fruits of corporate growth and benefited stably from their shareholding, they will not really care about the company issuing stock awards to employees at an appropriate price.
This can achieve a win-win situation for the company, shareholders and employees.
In terms of policy improvement and supervision, in order to give full play to the long-term incentive effect of the employee stock ownership plan and prevent it from becoming a tool for a few people to make profits, the policy should be based on the premise of maintaining fairness. While maintaining the flexibility of the employee stock ownership plan, it should be appropriate Raise the barriers to implementation.
At the same time, encourage and guide listed companies to implement long-term plans, improve the restraint mechanism of low-priced employee stock ownership plans based on the principle of equal incentives and constraints, and maintain the fairness of the interests of all parties in the market.