1. Cases
(1) Overview of the case
Taking Huawei as an example, the "1 1 1" model is the first one, and the dividends are distributed according to the employee's position, qualifications, quarterly performance and other factors after joining the company for one year. The funds** are generally the employee's annual bonus, but if the new employee's annual bonus amount is not enough, the company will lend to the employee.
Later, Huawei implemented a plan called "virtual shareholding", which is essentially an appreciation right and a type of option. In the eyes of employees, the plan is much more reasonable than the equity system: in Huawei's evaluation system, employees can get a certain amount of options, and within a four-year period, employees can cash out 1 4 per year with the latest net assets per share**, and employees do not have to pay out of their pockets as before, but directly obtain the difference in net assets each year when exercising the rights.
However, it is said that after this plan came out, many employees chose to cash out their equity according to their net assets and leave Huawei, so Huawei had to face financial pressure. In order to improve equity and effectively maintain the enthusiasm of employees, Huawei's equity MBO plan has begun to be brewed. Huawei intends to repurchase all of the original equity and "virtual shareholdings", and at the same time implement the joint ownership of the company's employee equity by 1,000 middle and senior managers, with 15% of the funds contributed by the employees, and the rest guaranteed by Huawei, and the employees collectively borrowing from the bank in their individual names.
(2) Case analysis
From the perspective of Huawei's shareholding structure and change trend, Huawei has actually followed a journey from employee stock ownership to senior management stock ownership. The high dividends that Huawei employees have received over the years are due to the employee stock ownership plan that has been implemented since its establishment. The amount of dividends depends entirely on the efficiency of the enterprise, which makes all people care about the development of the enterprise, rather than just blindly caring about the gains and losses of individuals.
Huawei's "virtual shareholding" plan is somewhat similar to an option. The issuance of virtual ** will not affect the company's total capital and ownership structure, and only needs to be approved by the general meeting of shareholders without the approval of the CSRC. In the eyes of employees, the plan is much more reasonable than the equity system. However, many employees choose to leave Huawei after cashing out their equity according to their net assets, which also puts pressure on Huawei's finances.
(3) Advantages
1.Employee stock ownership is a good incentive mechanism and can be used as a benefit for employees. Due to the design of China's salary system, most of them still stay on the traditional annual salary or monthly salary. So in the long run, our compensation structure will develop in the direction of employee stock ownership, which is the direction of the future;
2.Employee stock ownership is conducive to diversifying the shareholding ratio of major shareholders and diluting the distribution of share capital. Similar to the historical "Tui En Order", decentralization is centralization, which is conducive to the choice of a more rational and appropriate direction when making decisions.
(4) Where the disadvantages are
1.The efficiency of the business.
2.Whether it's fair or not.
2. Differentiation and selection of equity types
In a broad sense, equity has both identity rights and property rights, but in the context of rapid economic development and corporate model changes, companies are more inclined to remove identity rights and use property rights and indirect shareholding to motivate specific objects.
(1) If it is a direct shareholding model, it will bring a series of complex problems:
1.Number of people is limited:The number of shareholders of a company is limited by law.
2.Administrative Efficiency and Administrative Risk:In the course of modern enterprise development, it is often necessary to go through multiple rounds of financing, and these opportunities are fast-paced and may be fleeting, and the amendment of the shareholders' agreement, the articles of association and the handling of industrial and commercial changes all need to be unanimously agreed by all shareholders. When there is a conflict between the employee and the enterprise, the employee can use the smaller equity in his or her hands to coerce the enterprise to satisfy his improper interests, etc.
3.Corporate Governance Risks:If there is a change in the shareholder's civil capacity, divorce from the spouse and division of property, disappearance, death, etc., the issue of equity exercise may be affected to a certain extent. When the number of shareholders surges, there are certain difficulties such as difficulty in reconciling the public opinion and conflict of interest, whether it is pre-design in the early stage or amending the articles of association or equity-related rules and regulations in the later stage.
(2) Indirect shareholding model that is more suitable for the company's operation:
When an enterprise establishes a shareholding platform, the actual controller or designated person of the company serves as the main manager, and the employees indirectly hold the equity of the enterprise by holding the interests of several specific shareholding platforms. In practice, for the sake of tax advantages and flexible control, enterprises mostly choose limited partnerships.
IIIFrom the perspective of the incentive object, how to design the incentive system of options
(1) Capital contribution
1.Enterprises directly contribute to increase shares. For the enterprise, the financial pressure is high, which directly and effectively affects the income of the original shareholders, and it is difficult for the original shareholders to form a unified opinion. For the incentive object, it is easy to form a "natural" mentality, and the incentive effect is not long-lasting.
2.From the employee's other cash awards, a portion is allocated as capital for the purchase of equity. For enterprises, it is to delay the reward of employees, and the financial pressure is not large. For employees, when the development momentum of the enterprise is good and the development of its own plan is in line, it is happy to see this kind of benefit.
Equity has the attribute of financial resources, and when the development trend of the enterprise is good, it can obtain a multiplied premium in the capital market. If the implementation involves the incentive object to pay for the purchase, it has the nature of investment to a certain extent, and can be regarded as an investment behavior of the employee. When investors invest, they are most concerned about safety, risk, reward and liquidity.
* In the practice of options, first of all, employees should feel that their funds are safe and their investment is worthwhile. This requires enterprises to have a good reputation, a good culture and positive development prospects. If employees are generally not optimistic about the company, the option will not work.
(2) Objectively warn of risks
There is no harmless thing in the world, and when an enterprise implements equity incentives for incentive objects, it is better to properly list the pros and cons than to blindly explain the benefits. It not only allows the incentive recipients to experience the sincerity of the enterprise, rather than "deceiving people into the thief ship", but also realizes reasonable exemption from liability. No earnings can be promised. The benefits should be reasonable, and the confidence of employees should be stimulated through the shaping of corporate value.
(3) When the reason for withdrawal occurs, how to "say goodbye" in a dignified manner?
When designing the equity incentive plan, the enterprise needs to wait for liquidity, ensure the voluntary and smooth exit of employees, and design the channels for employees to exit under different circumstances.
1.In the case of a positive exit:Enterprises can consider giving employees appropriate benefits in buyback pricing, as well as applying different buyback** and buyback ratios according to the employee's service period, so as to encourage long-term service and enhance employee loyalty.
2.In the case of a negative exit:Enterprises may consider setting up a relatively stringent buyback mechanism to strengthen the restraint on employees.
Fourth, Ping's theory
1.Money incentives don't solve everything. According to Maslow's Theory of Needs,When people are satisfied with a certain need for money, they will be more inclined to the pursuit of self-worth.
2.Corporate incentive plans are not designed to focus on one party, such as the needs of employees should be subordinated to the development of the company, or incentives are only to meet short-term personal interestsRather, it takes into account the long-term development of employees and the strategic planning of the company.
3.Enterprises incentivize specific targets for the purpose of ex-ante incentives or ex-post rewards, which corresponds to labor disputes or civil contract disputes in judicial practice. Therefore, it is best for enterprises to declare the premise of equity incentives in advance in the design, so as to reasonably avoid legal risks. When a dispute arises, the applicable law can be quickly located to minimize disputes.
4.Small and medium-sized enterprises often lack a link in the implementation of equity incentives based on a relationship of trust. The key evidence for the people's court to determine that the equity incentive is established and effective lies in the resolution of the shareholders' meeting and the evidence that the incentive recipient accepts the equity incentive.
V. Governing Law
Articles 20, 21, 33, 41 to 43 of the Company Law.
That's all for today's sharing, for more legal issues of equity and M&A, welcome to pay attention to and consult Dr. Wang Ping, co-founder of ZhongYin Guangzhou Law Firm and a practical equity and M&A lawyer.