How To Make Employee Stock Ownership Better "Choose The Right Way"?

In technology intensive industries and the new economy, all kinds of founding teams are familiar with the way of binding employees' interests. Employee stock holding platform is almost the necessary choice to build equity structure.

For example, recently, ant group, the parent company of Alipay, announced the launch of listing at home and abroad, and fully disclosed the ownership structure for the first time. The relevant employee stock ownership arrangements have been widely concerned, and the wealth effect it brings has also become the focus of public heated discussion.

The domestic A-share market has been practicing ESOP for more than six years since 2014. As an important role of modern corporate governance, ESOP ushers in sustainable development.

As early as 2015, China's stock price was at a historical high, and the M & a market was in full swing, and the enthusiasm of ESOP to participate in the non-public offering shares was also rising. Since the "opinions on supporting the repurchase of shares by listed companies" was released in November 2018, there have been 75 employee stock ownership plans with shares purchased by the company, which is significantly higher than that in previous years.

By the end of 2020, there were more than 690 high-tech and communication companies in Shenzhen, accounting for 21.85 times of the implementation of the high-tech and high-tech companies in the chemical industry, accounting for more than 15 times of the implementation of the high-tech and data intensive plan in the chemical industry, accounting for more than 690 times.

Reasonable implementation of ESOP can achieve win-win results.

In the view of industry insiders, ESOP is intended to "stabilize the morale" and fully mobilize the initiative of employees by means of benefit sharing. After subscribing for the shares of the stock ownership plan, the employees become the "masters" shareholders, which gives rise to a sense of "masters".

On the other hand, the internal employees of listed companies subscribe for share holding plan shares, which conveys their confidence in the company's future business development and capital market performance to the market, which is equivalent to injecting a "booster" into investors and becoming the "booster" of many companies' share price rise.

In addition, ESOP also helps to optimize the corporate governance structure. Shareholders can exercise the rights of shareholders, participate in the operation and management of the company and major decisions, to a certain extent, avoid some "short-term behavior", and promote the long-term, sustainable and healthy development of the company.

However, with the development and change of the market, some problems are gradually exposed.

The first is the abuse of highly leveraged funds. At present, there are various sources of funds for ESOP. In addition to self financing, there are also various kinds of leverage funds to join in, so that employees can have more shares. But leverage magnifies not only earnings, but also risks. A small number of events, such as the market explosion, will not lead to a sharp fall in the market.

According to the case mastered by the 21st century economic reporter, a listed company set the employee stock ownership plan Grading ratio as 2:1. Because the net value of the stock ownership plan unit was lower than the warning line, and did not take timely measures to replenish positions, all employees' actual contributions of nearly 130 million yuan were fined and confiscated. Some large shareholders of some listed companies do not hesitate to illegally occupy the funds of listed companies to make up positions for ESOP.

Some people close to the regulators said that the employee stock ownership plan under high leverage has become a bomb that will explode at any time. Once it explodes, it will not only destroy the owners' blood and destroy the trust relationship between the employees and the listed companies, but also may transmit the risk from the employees to the listed companies, damaging the interests of the listed companies and all shareholders.

In addition, there are cases that ESOP has been transferred to the company's treasury shares at a substantial discount. The price of some ESOP transferred company's treasury stock is far lower than the average repurchase price of the inventory stock. This arrangement of "no loss, no profit" obviously violates the basic principle of ESOP of "self financing of profit and loss, and self bearing of risk". It has become a kind of disguised equity incentive, which naturally leads to widespread doubts about "benefit delivery" and regulatory arbitrage in the market.

What's more, when the ESOP is launched, "private goods" will be taken as a tool for relevant parties to seek private interests. For example, major shareholders or actual controllers participate in ESOP by providing loan or financing guarantee, providing guarantee of principal and income, etc., which may be used to buy and sell shares of the company to evade supervision, or as a "secret weapon" in the struggle for control rights, or even arrange the plan to take over the shares of shareholders.

Generally speaking, in the A-share market, the practice of ESOP is still in the ascendant stage. To make good use of this "double-edged sword", we need to take marketization and legalization as the direction, and take information disclosure as the core to constantly improve its institutional arrangements.

In fact, in view of the hidden dangers and chaos in the implementation of ESOP, the regulatory authorities are also making continuous efforts to explore the relationship between balanced norms and development.

According to the reporter of 21st century economic report, under the background of optimizing the self regulatory regulatory system, the Shenzhen Stock Exchange issued the No.4 guidelines on information disclosure of listed companies - employee stock ownership plan on November 3, 2019, aiming at the high leverage risk, deep participation of large shareholders and continuous information disclosure in the process of implementing ESOP by listed companies and relevant entities in Shenzhen Stock Exchange in recent years There are some problems such as insufficient disclosure and "equity incentive" in the scheme.

It details the disclosure requirements of capital source, share source, equity management mechanism and accounting treatment, improves the review procedures, avoidance requirements and information disclosure obligations of all links in the whole chain from planning to termination of ESOP, improves the pertinence and effectiveness of information disclosure of ESOP, guides listed companies to implement ESOP in compliance with regulations and effectively, and supervises intermediaries The institutions should return to their original positions and fulfill their responsibilities, so as to open the "black box" of non-standard and opaque schemes, so as to provide guarantee for the establishment of long-term incentive mechanism and the promotion of enterprise vitality and efficiency.

The exchange also paid close attention to and inquired about the problems such as the scheme's non-compliance with relevant regulations, the implementation procedures were not in conformity with the relevant provisions, the implementation of discount was suspected of profit transfer, the "equity incentive" of the shareholding plan, and the accounting treatment was questionable. The exchange also asked the company to make supplementary explanation and disclosure on the pricing basis and rationality of the scheme, whether it is involved in the transfer of interests of suspected major shareholders, whether it is suspected of regulatory arbitrage, etc.

According to the reporter's statistics, after the issuance of the above guidelines, up to now, the Shenzhen Stock Exchange has issued more than 50 letters of concern and inquiry concerning ESOP.

As an important institutional arrangement to improve corporate governance and enhance the vitality of enterprises, ESOP aims to achieve long-term win-win situation for the company, employees and shareholders. It can not be a mere show, nor is it a speculative tool for making a fortune overnight, nor is it a chip for a few people to seek profits. Instead, it should "not fear the clouds cover the eyes", return to the source of benefit sharing, and increase employees' initiative Improve the fundamentals of the company, so as to increase the investment value of the company. Listed companies should also follow the trend and make good use of ESOP tools to achieve a positive interaction between the company's high-quality development and employees' interests.

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