1、SHANDONG外文翻译 学 院： 商学院 专 业： 会计系 2011 年 6 月SOE Execs: Get Ready For Stock IncentivesTAN WEIStock option incentive plan will soon be available to state-owned enterprise executives, but will it lead to greater prosperity or new problems? A trailblazing new scheme to infuse state-owned enterprises (SOEs)
2、 with incentive stock options is under way. Its a plan that may bolster company performance, but its not without risks.On August 15, Li Rongrong, Minister of the State-owned Assets Supervision and Administration Commission (SASAC), disclosed that after careful study, a stock option incentive trial p
3、lan will be carried out in the listed SOEs. According to the trial plan, about 102 A-share listed SOEs are expected to be the trial companies. The short list of some of those expecting to participate includes: China Unicom, Citic Group, Kweichow Moutai, China Merchants Bank and Beijing Financial Str
4、eet Holding Co. Stock option incentive plan is designed to entice executives to work hard for the long - term development of their companies. As stocks rise based on company performance, they too gain through this profits haring arrangement. This kind of incentive plan is popular in foreign countrie
5、s, especially in the United States, where stock options can account for as high as 70 percent of a CEOs income. Further, many economists believe the stock option incentive plan optimizes corporate governance structure, improve management efficiency and enhance corporate competitiveness. On the other
6、 hand, after the Measure s on the Administration of Stock Incentive Plans of Listed Companies was issued early this ye a r, some of the companies turned out to have misused the incentive stock options. The result was insider dealings, performance manipulation as well as a manipulation of the company
7、 stock price. “Although the stock option incentive scheme is a frequently used tool to encourage top management, it could also be a double - edged sword especially in an immature market economy,” Li said. The SASAC is therefore taking a cautious approach, placing explicit requirements on corporate g
8、overnance, the target and extent of the incentive measures, Li added. Li stated that the overseas-listed SOEs would be the first few companies that will implement the mechanism because of their sound management structure and law-abiding nature. Then the domestic listed SOEs will have the chance to e
9、mbrace incentive stock options, which would be promoted if the trial results were good. Executive face-liftAs for more than 900 listed SOEs, the personnel structure of the boards of directors will pro b ably face substantial change. Thats because the plan states that if the s t o ck option incentive
10、 mechanism is going to be implemented in listed SOEs, external directors should account for half of the board of directors. The trial plan introduced the concept of external directors for the first time. The external director should be legally recommended by directors of listed SOEs, and should not
11、be working in the listed SOEs or in a holding company, said the plan. However, currently, most of boards of directors of listed SOEs are not in compliance with the requirement. They have to readjust the structure of board of directors to fit in with the new mechanism. “For most of the SOEs which are
12、 listed in the A-share market, their boards of directors are made up of non-external directors and independent directors, which means that apart from independent directors, members of board of directors are all working for the listed company or for the large shareholder,” said Zhu Yongmin, an econom
13、ist with the Central University of Finance and Economics. “If the stock option incentive mechanism is to be carried out in those companies, a large-scale restructuring of board of directors is unavoidable and external directors must be introduced into the board.” China Securities Regulatory Commissi
14、on (CSRC) stipulates that an independent director is one who doesnt hold another office beyond his job as a director, and has no such relations with major share holder that would interfere with the exercise of independent and objective judgment. “Currently, the independent directors of listed compan
15、ies can be categorized as external directors,” Zhu said. “However, the definition of external director is much broader than independent director. Those who work for a company which has business ties with a listed company, though they do not meet the requirements of being an independent director, but
16、 can be considered an external director.”Additionally, the trial plan also stipulates that the salary committee of listed SOEs that exercise the stock option incentive mechanism should be composed of external directors. However, for most of the listed companies, there are still non - external direct
17、ors. As a result, a considerable number of listed SOEs need to transform their salary committee to fulfill the prerequisites of the stock option incentive mechanism. Avoiding over-compensationOver- compensation is something that the trial stock plan is trying to avoid as well. Therefore, the trial p
18、lan states that domestic listed SOEs executives should receive no more than 30 percent of their total salary (including options and dividends). But as for the overseas-listed SOEs, the maximum incentive is 40 percent of the target salary. The trial plan also fixes the volume of incentive stock optio
19、ns. The trial plan states that the volume of incentive stock options should be fixed in accordance with the scale of the listed company and the number of incentive objectives. The number of share allocated may not exceed 10 percent of the companys total share capital and no less than 0.1 percent. In
20、 fact, Beijing Review was informed by the CSRC that some 20 listed SOEs also began exploring stock option incentive schemes in the first half of this year. But none of them received approval from the CSRC because their schemes revealed sharp contrast with the trial plan in terms of the scale of ince
21、ntive stock options offered. Results-orientedUnder the trial plan, better performance is a must to obtain stock privileges. The number of incentive stock options that senior executives in listed SOEs can get depends on their annual performance. If they cannot fulfill the targeted objective s , the l
22、isted company may have the right to take back the incentive the stock options or purchase them back at the price at which they we re sold to the executives . Zhu Yongmin noted that the stock option incentive plan is not invariable. The directors of listed companies, senior executives, and core techn
23、ological and management personnel may not get the target stock options if they fail to achieve a satisfactory performance. No freebiesFor sure, state stocks wont be given to executives for free, under the trial plan. “The state stocks have prices,” Zheng said. “If they we re paid to senior executive
24、s for free in the name of incentive stocks, it is equal to a loss of state assets. To elaborate, the incentive stocks should be the increment of stocks that are earned by the executives for listed SOEs after the implementation of the trial plan, and should not be previous stock inventory. In short,
25、the past is past. Only future stock increases can be used as incentive stocks.” Further, “The incentive stocks should not be paid only by the SASAC, which is the largest shareholder of all the central SOEs,” said Zheng Peimin, Chairman of Shanghai Realize Investment Consulting Co., who took part in
26、drafting the trial plan,. “ The incentive plan should be a joint action of all share holders of a company and they should shoulder the same responsibility and enjoy equal benefit .” Already, share holders pay for salaries of directors, senior executives and technology management staff. “The incentiv
27、e stocks should also be paid by all shareholders.” Zheng said. “For instance, if the government, or a state owned enterprise, holds 60 percent of a listed SOE, they should only pay 60 percent of the incentive stocks and 40 percent should be paid by other share holders.” Investor pricing of CEO equit
28、y incentivesJeff P. Boone Inder K. Khurana K. K. RamanAbstractThe main purpose of this paper is to explore CEO compensation in the form of stock and options.The objective of CEO compensation is to better align CEO-shareholder interests by inducing CEOs to make more optimal (albeit risky) investment
29、decisions. However, recent research suggests that these incentives have a significant down-side (i.e., they motivate executives to manipulate reported earnings and lower information quality). Given the conflict between the positive CEO-shareholder incentive alignment effect and the dysfunctional inf
30、ormation quality effect, it is an open empirical question whether CEO equity incentives increase firm value. We examine whether CEO equity incentives are priced in the firm-specific ex ante equity risk premium over the 19922007 time period. Our analysis controls for two potential structural changes
31、over this time period. The first is the 1995 Delaware Supreme Court ruling which increased protection from takeovers (and decreased risk) for Delaware incorporated firms. The second is the 2002 SarbanesOxley Act which impacted corporate risk taking, equity incentives, and earnings management. Collec
32、tively, our findings suggest that CEO equity incentives, despite being associated with lower information quality, increase firm value through a cost of equity capital channel. Keywords：CEO equity incentives，Information quality，Cost of equity capital Introduction In this study, we investigate investo
33、r pricing of CEO equity incentives for a large sample of US firms over the period 19922007.Because incentives embedded in CEO compensation contracts may be expected to influence policy choices at the firm level, our objective is to examine whether CEO equity incentives influence firm value through a
34、 cost of equity capital channel.Prior research (e.g., Jensen et al. 2004; Jensen and Murphy 1990) suggests that equity- based compensation, i.e., CEO compensation in the form of stock and options, provides the CEO a powerful inducement to take actions to increase shareholder value (by investing in m
35、ore risky but positive net present value projects). Put differently, equity incentives are expected to help mitigate agency costs by aligning the interests of the CEO with those of the shareholders, and otherwise help communicate to investors the important idea that the firms objective is to maximiz
36、e shareholder wealth (Hall and Murphy 2003). However, recent research contends that equity incentives also have a perverse or dysfunctional downside. In particular, equity-based compensation makes managers more sensitive to the firms stock price, and increases their incentive to manipulate reported
37、earningsi.e., to create the appearance of meeting or beating earnings benchmarks (such as analysts forecasts)in an attempt to bolster the stock price and their personal wealth invested in the firms stock and options (Bergstresser and Philippon 2006; Burns and Kedia 2006; Cheng and Warfield 2005). St
38、ated in another way, CEO equity incentives can have an adverse effect on the quality of reported accounting information. As noted by Bebchuk and Fried (2003) and Jensen et al. (2004), by promoting perverse financial reporting incentives and lowering the quality of accounting information, equity-base
39、d compensation can be a source of, rather than a solution for, the agency problem. Despite these arguments about the putative ill effects of equity incentives, equity-based compensation continues to be a salient component of the total pay packages for CEOs. Still, given the conflict between the posi
40、tive incentive alignment effect and the dysfunctional effect of lower information quality, it is an open empirical question whether CEO equity incentives increase firm value. To our knowledge, prior research provides mixed evidence on this issue. For example, Mehran (1995) examines 19791980 compensa
41、tion data and finds that equity-based compensation is positively related to the firms Tobins Q. By contrast, Aboody (1996) examines compensation data for a sample of firms for years 1980 through 1990, and finds a negative correlation between the value of outstanding options and the firms share price
42、, suggesting that the dilution effect dominates the options incentive alignment effect. Moreover, both these studies are based on dated (i.e., pre-1991) data. In our study, we examine whether CEO equity incentives are related to the firm-specific ex ante equity risk premium, i.e., the excess of the
43、firms ex ante cost of equity capital over the risk-free interest rate (a metric discussed by Dhaliwal et al. 2006).Consistent with Core and Guay (2002), we measure CEO equity incentives as the sensitivity of the CEOs stock and option portfolio to a 1 percent change in the stock price. Based on a sam
44、ple of 16,502 firm-year observations over a 16 year period (19922007), we find CEO equity incentives to be negatively related to the firms ex ante equity risk premium, suggesting that the positive incentive alignment effect dominates the dysfunctional effect of lower information quality. In other an
45、alysis, we attempt to control for two regulatory (structural) changes that occurred during the 19922007 time period of our study.As pointed out by Daines (2001), regulatory changes can have an impact on firm values and returns as well as the structure of executive compensation. First, Low (2009) fin
46、ds that following the 95 Delaware Supreme Court ruling that resulted in greater takeover protection, managers reduced firm risk by turning down risk-increasing (albeit positive NPV) projects. In response, firms increased CEO equity incentives to mitigate the risk aversion. Potentially, the impact of
47、 the Delaware ruling on managers risk aversion and the follow-up increase in equity incentives (to mitigate the increase in managers risk aversion following the ruling) may have resulted in a structural change in our sample at least for firms incorporated in Delaware. To control for this potential s
48、tructural impact, we perform our analysis for Delaware incorporated firms for 19962007 separately. Our results suggest that the favorable effect of CEO equity incentives on firm value (as reflected in the lower ex ante equity risk premium) is similar for Delaware firms and other firms.Second, a numb
49、er of studies (e.g., Cohen et al. 2007, 2008; Li et al. 2008) indicate that the 2002 SarbanesOxley Act (SOX) lowered equity incentives (i.e., reduced the proportion of equity incentives to total compensation post-SOX), reduced managerial risk taking, decreased spending on R&D and capital expenditures, and reduced accruals-b
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