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Employee Stock Options Plans-Notable Trends




SSE and Type II Restricted Equity Also known as the Shanghai Stock Exchange Star Market (hereinafter referred to as the Board of Directors), the Cytech Innovation Board is the number one means of incentives for Type II restricted equities (or employees). Sometimes referred to as two categories of restricted stock. This type of restricted stock does not require prior capital contributions because he or she invests in the company’s stock after the incentives meet the conditions. You can use the reduced subsidy price to and trade freely after a limited sales period.

The Equity Stock Option Plan (ESOP) is implemented to encourage employee performance by selling company stock to these high-performing employees. These plans are being implemented with the hope of promoting the development of listed companies. For companies implementing the ESOP, the quality of corporate development may be better than for companies without equity incentives. Sound corporate development helps companies ultimately achieve high valuations and benefits both shareholders and investors.

Implementation Trends Stock incentives are further submerged in regulatory policies as the reform of the stock registration system continues to progress. At the same time, the importance of stock incentive mechanisms as a corporate strategy is becoming more and more prominent.

By 2020, companies listed on the SSE Board will tend to prefer “Type II restricted stock” as a stock incentive tool. Equity incentive growth has grown over the years. In fact, according to data from the Wind database, more than 70 equity incentive plans have been issued between June 2019, when the board of directors was established, and the end of 2020. Most of these issuers tend to be private companies compared to state-owned companies.

Type II restricted stocks are highly dependent on the core management and technical support teams, so companies can attract and retain talent by offering low-priced stocks, employee innovation and corporate innovation. Promote dedication. Type II allows you to capitalize on the company’s actual managers, core managers, and core employees, and qualifies many members in different positions of the company for incentives. can do.

It is noteworthy that the ESOP is an incentive scheme that allows the Target Company to acquire certain shares of the company, allowing the Target Company to enjoy the financial benefits and rights provided by the shares, and perhaps participating in the company’s decisions. Deserves. As a shareholder, a company shares profits, takes risks, and ultimately contributes to the long-term development of the company. This is an important way to attract talented people and professionals.

Case Study: Frontier Biotechnologies Inc. Frontier Biotechnologies Inc. is a biomedical company based in Nanjing, Jiangsu Province, China. It produces HIV drugs. In China, this is a large patient base and such a large market for long-term treatment. According to the US Centers for Disease Control and Prevention, the number of people infected with HIV in China exceeds one million, with a compound annual growth rate of 9.1%. This is a real market, Frontier Biotechnologies Inc. It shows that companies like this need to develop their own products.

With the expected large market and sales growth, Frontier is also taking steps to incentivize management and core employees. In February, we launched a 2021 stock incentive plan. According to the ESOP evaluation criteria, the company’s business revenue from 2021 to 2023 will reach RMB 80 million, RMB 300 million and RMB 1 billion, respectively, in order to unlock 100%. Limited shares have been granted.

Corporate Impact and Concerns However, despite the benefits, there are drawbacks to using Type II restricted stock. Equity incentives play a key role in increasing employee ownership, relieving cash flow pressure, increasing market credibility and driving performance. However, from a corporate tax perspective, there are some issues.

The first problem is that the stock incentive costs recognized by accounting standards do not match the period during which the tax amount can be deducted before tax. If the incentive individual does not exercise his rights, the incentive fee cannot be deducted before tax. This does not help encourage companies to set longer waiting periods to build long-term incentive mechanisms.

The second problem is that the termination of the stock incentive requires an accelerated one-time confirmation fee that cannot be deducted before tax. If the listed company voluntarily terminates the stock incentive, the incentive subject has not acquired the stock, but the listed company still has to bear the cost of the stock. Such costs cannot be used to deduct the taxable amount of corporate income tax, contrary to reasonable economic behavior.

Therefore, while Type II restricted stocks are becoming more popular, there are some drawbacks to keep in mind. SSE companies are increasingly reliant on Type II restricted stock, which could continue for years to come.

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