The stock option system is a compensation system used by companies in Western countries to encourage managers and employees to work hard for the company's long-term development. The general lack of incentives and constraints for company operators is a major problem in corporate governance in my country. Therefore, we also need to create conditions to implement the stock option system in a step-by-step manner as soon as possible.

Basic issues that must be solved

(1) There is a lack of understanding of the content of the stock option system and the conditions required for its implementation, and there is cognitive blindness. If you don’t know the possible risks, you don’t know the possible negative impact on shareholders (especially small shareholders), you don’t pay attention to the establishment of basic systems for business operators, including assessments, salary packages, etc., and you don’t understand the impact of these basic systems on the implementation of The importance of equity incentive systems such as stock options.

(2) Corporate governance is imperfect. When the stock option system is introduced under insider control, operators will inevitably fix their own salaries and shares, harming the interests of the company and shareholders. State-owned enterprises, including listed companies with state-owned holdings (including relative holdings), have an unsound corporate governance structure. The outstanding manifestation is that the boss of the state-owned enterprise is not in place, and there is no institution that assumes the responsibility for state-owned capital operations and assumes the responsibility and authority to decide on relevant personnel and assessments. Most of the operators of listed companies are insiders who have close relations with the holding institution, and are even the same person as the person in charge of the holding company. As long as the holding institution agrees, it is easy for the operators of listed companies to control the company. This structure, coupled with the fact that the company has not established a strict audit and assessment system, makes it very likely that insiders of state-owned listed companies will unreasonably set their own compensation shares. Listed companies controlled by private individuals or non-state-owned legal persons also have the same problem due to imperfect corporate governance structures. The recent hollowing out of state-owned and non-state-owned listed companies that has attracted the attention of all parties shows that the above concerns are by no means groundless.

(3) The capital market is not perfect, and more black-box operations and behind-the-scenes transactions may occur due to the introduction of the stock option system. Our country’s supervision of illegal activities such as behind-the-scenes transactions is not yet complete or strict. Implementing a stock option system and even allowing stock repurchases will increase the likelihood that operators will engage in illegal insider trading and cooperate with outsiders to manipulate the market. The professional ethics and standards of securities, accounting, legal and other intermediary service agencies are not high, and there are even serious problems of falsifying accounts, which is not conducive to the improvement of corporate governance, the sound development of the capital market, and the effective functioning of the stock option system.

(4) The management system in which the government directly controls the remuneration of state-owned enterprises is not conducive to the establishment of reasonable stock option systems by enterprises. Remuneration in the form of stock options is part of the operator's comprehensive remuneration. The company can only determine the overall level and structure of the operator's remuneration based on its own needs, financial affordability, talent market price, etc. The operator's compensation plan is an important part of the company's talent strategy and business strategy. It is difficult to coordinate with the compensation system required by the company's talent strategy if it is managed by the state's approval method. It will destroy the long-term and short-term compensation, stock form and cash form. The inherent unity of the system is not conducive to a reasonable and true estimate of the company's complete salary costs. Red chip and H-share companies that are restructured and restructured based on state-owned enterprises and listed overseas must abide by the laws and regulations of the local capital market, so there are no legal obstacles to the implementation of the stock option system. The main issues that such companies need to solve when implementing the stock option system include the reasonable design of the stock option plan, the issue of who is responsible and has the right to decide the stock option plan, and the issue of foreign exchange processing related to the implementation of the plan.

An issue that is likely to cause controversy in plan design is the object and quantity of stock options to be granted. Are the grant recipients the company's management and key personnel, or is it extended to ordinary employees? How to grasp the amount and difference in the amount granted to people at each level? For example, should people with higher administrative levels be granted more shares? The essential question is on what principles should the stock option plan be designed.

Red chip companies registered in Hong Kong and other overseas listed companies generally have remuneration committees headed by independent directors. Can the plan proposed by the remuneration committee be implemented after it is approved by the shareholders' meeting, or does it still have to be approved by relevant domestic authorities? The essence of the problem is who determines the remuneration of operators. When the corporate governance structure is sound, whether the relevant national departments should directly control the remuneration of operators of listed companies.

In addition, there is another problem caused by the fact that my country’s foreign exchange free convertibility under the capital account has not yet been liberalized. This is a technical issue and can be handled with workarounds. However, relying on case-by-case approval is too inefficient, and the state needs to clarify relevant policies and implementation rules. 1. The biggest obstacle to the implementation of the stock option system in listed companies is that due to imperfect corporate governance and inadequate supervision of the securities capital market, the stock prices of some companies are seriously out of touch with the company's intrinsic value. Some company operators collude with market makers to often cause abnormal stock prices. Big ups and downs. Implementing a stock option system under such circumstances may bring serious consequences: unreal stock prices may cause operators to earn far higher incomes than they deserve; in order to obtain stock option income, operators may be more motivated to artificially speculate on the stock market.

2. It is necessary to eliminate the legal obstacles to the implementation of stock options by domestic listed companies. Neither the "Company Law" nor the "Securities Law" provide for companies to implement a stock option system, and there are also some provisions that make the stock option plan impossible to implement at all.

Prominent issues in the "Company Law" include: it stipulates that operators of listed companies cannot transfer stocks during their tenure, making stock option plans basically impossible to implement; Chinese law stipulates the implementation of a paid-in capital system, which allows operators or employees to exercise stock options automatically It is difficult to exercise rights, and the shareholders' meeting cannot resolve the company's capital increase and amend the articles of association when it is uncertain whether the operator will exercise the rights. Although it is feasible for the operator to register with the industrial and commercial department immediately after exercising the rights, the exercise period of the holders may not be consistent. It will be very troublesome; Chinese law prohibits companies from repurchasing stocks, so companies can only implement stock option plans by increasing capital and diluting their share capital. The relevant provisions of the tax law are also not very clear, and there is a problem that the incentive effect is greatly reduced because the one-time tax amount based on the net income from exercise is very large. There are no relevant provisions in the Securities Law and its implementation rules.

In order to circumvent the restrictions of current laws and regulations, some companies in my country implement disguised stock awards or simulated stock option systems. There are three main methods:

1. The parent company controls the operators of listed subsidiaries Reward stocks and futures stocks based on performance;

2. Operators of listed subsidiaries will be awarded stocks or futures shares by the company with the consent of the major shareholders;

3. Listing Company operators obtain equity incentives by holding shares in subsidiaries, by organizing companies to indirectly hold listed shares, or by obtaining future shares in subsidiaries. These explorations have achieved certain results, but some companies have an imperfect governance structure and have the problem of one dominant shareholder under the control of insiders. They use a variety of modifications to set their own remuneration, and some problems have arisen: for example, when the parent company or major shareholder Self-dealing or internal exchange of interests with the operators of listed subsidiaries when they are all insiders; operators indirectly hold shares or hold shares and receive salaries from subordinates, making the equity and governance status of listed companies opaque, and operators becoming separated from shareholders, directors and supervisors Supervision; operators of listed companies can obtain hidden income through related transactions, stock market operations, etc.

In addition, listed companies with state-owned holdings (including relative holdings) also have issues similar to red-chip companies on how to design plans appropriately, whether remuneration plans need to be approved by relevant state departments, and whether they can use the approval of major state-owned shareholders. Transferring reduced state-owned stocks to operators solves the problem of the source of stocks for stock option exercise. There are two situations for unlisted companies. One type is companies with good growth prospects that plan to go public in the future. The basic problems of these companies are similar to those of listed companies. Their unique problem is whether the stock option plan designed when the company is not listed will become unavailable when the company is listed. Legal barriers to listing. The other category is companies that are unlikely or do not plan to go public for a long period of time. Some domestic companies of this type have also designed so-called stock option plans.