Analysis of companies listed on GEM equity incentive Legal Regulation

Abstract GEM listed companies have chosen to implement equity incentive plan to attract and retain qualified personnel, as part of its preparations for the executives of the 'golden handcuffs.' However, due to internal controls and the absence of external constraints, equity incentive bring more positive effect in the same time also had a lot of negative effects. Therefore, to clarify the equity incentive regulation gaps, strengthen the companies listed on GEM equity incentive legal regulation, will make equity incentive can really push GEM listed company's internal governance reform, innovation and development talent to meet their needs.

Paper Keywords GEM equity incentive legal regulation

Equity incentive system began in the United States are considered executives of listed companies to their 'golden handcuffs', has been on attracting and retaining talent has a very important stimulus. According to wind data show that since April 2010 Pathfinder first launch of the GEM equity incentive plan since the entire GEM about 102 listed companies launched equity incentive plan or draft drawn up equity incentive plan. Visible, choose companies listed on GEM equity incentive enthusiasm, but also a lot of problems emerged, after the resignation of executive incentive cash phenomenon frequently. GEM equity incentive What positive and negative effects on corporate governance? Equity incentive constraint how to determine? How to effectively regulate incentive, to effectively protect the interests of all investors? These issues need to be realistic to think and answer.

First, the companies listed on GEM equity incentive laws connotation

Equity incentive is through employee stock holding company or enterprise to achieve the company's overall interests and the interests of employees together. Such incentives aimed at creating a model, making the operators, employees and restraint mechanisms exist between enterprises. For GEM listed companies, equity incentives on the one hand can mobilize the enthusiasm of the staff inside, one can attract the best talent and investors. Compared with other incentives, incentive stock options timeliness stronger, more incentives for employees, and can be well integrated within the company's distribution of benefits. Examine innovative countries listed company's equity incentives, we find that the current international use of more equity incentives are: stock options, restricted stock, employee stock ownership plan (ESOP), phantom stock, stock appreciation rights, performance shares , deferred payment plans. Among them, the performance of the stock and phantom stock is a workaround, stock appreciation rights incentive effect is poor and requires large amounts of cash expenditures. Therefore, the current use more stock options and restricted stock.

Second, companies listed on GEM equity incentive effect analysis

(A) positive effects companies listed on GEM equity incentive has the following positive effects:
1. GEM can motivate executives of listed companies. Some company executives by giving stock options or restricted stock, the company's interests and the interests of executives tied together, company executives have positive expectations, will greatly stimulate the executives of the company and development of power, rather than simple resignation cash, thereby preventing damage to the company executives and shareholders.

2. Help to improve corporate governance. Stock options or restricted stock or lifted once been exercised, equity dilution and dispersion obtained, equity centralized eased, improved corporate governance institutions, thereby enhancing the company's internal governance, and thus to improve the structure of the Board, the independent directors to be truly independent exercise of their rights, which greatly reduced the 'dominance' from the drawbacks.

3. Facilitate the integration of companies listed on GEM of human resources, enhance the company's human capital value. Equity incentive mechanism will help the company to attract and retain a lot of creative talent, talent advantage is the company's development advantages. Secondly, the equity incentive mechanism can inhibit the operator's short-term behavior, to improve the company's enthusiasm and responsibility for the operation and increase the company's interests and enhance the company's human capital value.

(Two) the negative effects of equity incentive indeed has many positive effects, but without effective regulation, will produce more negative effects:
1. Equity incentive compensation accounted for the proportion of income over the General Assembly trigger a new moral hazard. Some companies in order to improve their operational efficiency, equity incentive executives will make far greater than the salary income. In this way the interests of executives with stock options tightly linked, could make the price higher, the greater the benefit executives, executives will inevitably induce moral hazard, landscaping company performance, whitewash Company's financial statements and other incidents occur, affect the company's long-term development.

2. If the equity incentive improper use, will make the long-term equity incentive and corporate performance goals decoupling. The initial purpose of incentive stock options by giving executives stock options to promote the interests of executives and companies sharing, risk sharing, thereby reducing agency costs, maximize shareholders' value. But in the implementation process, the company is largely deviated from the direction of creating value for shareholders. Some companies, such as the introduction of the equity incentive plan provides that when the stock market is bullish backdrop, even though the company relative to the same industry, poor performance, but management also obtain benefits from stock options, but the interests of conditions associated with the company's business. In addition, many of its companies listed on GEM equity incentive constraint seldom provide follow-up so that company executives can be freely transferable equity incentive cash, a departure from the original intention of incentive stock options.

3. Equity incentives will lead to profit manipulation, insider trading and price manipulation question frequently. To get exercise, company executives will be motivated to achieve profits by manipulating its purpose. In practice runs, the specific behavior as: exercise and vesting conditions, provision for incentive fund, the pursuit of short-term profits, select high-risk investments, steady growth in manufacturing performance. Secondly, a listed company on the implementation of equity incentive companies and external investors are major positive information, very often, corporate executives and related information conspiracy to exploit equity incentive engage in insider trading, manipulation of company shares to reap illegal profits.

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Third, the record panel listed company equity incentive regulation gaps and Countermeasures

(A) regulatory gaps in the endless stream of listed companies' financial fraud incidents show that listed companies equity incentive is precisely one of the important means of financial fraud. Therefore, the strengthening of listed companies equity incentive legal regulation has always been national securities legislators and regulators important work. Our introduction of the GEM, in addition to strengthening the 'Company Law', 'Securities Act' legal regulation performance, but also has introduced a number of companies listed on GEM on various aspects of laws and regulations, departmental rules and exchange rules. But a closer inspection revealed that the existing regulations on incentive stock options just scattered in the 'Equity Incentive listed companies management approach' (hereinafter referred to as the 'Rules'), 'the Shenzhen Stock Exchange GEM Stock Listing Rules' (2012 Amendment) No. 11 Chapter 9, and did not expressly regulate companies listed on GEM equity incentive rules. Seen, for incentive stock options there are many legal regulation gaps: First, legislation lags behind and missing. GEM existence of potential risks have been relatively large, with equity incentive exists incompleteness, making companies listed on GEM equity incentive legislation lags behind and weak for companies listed on GEM equity incentive there is no specific legislation. Second, the equity incentive illegal information disclosure obligations under the law is not clear. While existing requirements equity incentive plan must be implemented timely disclosure of information, but the information disclosure obligor if not legal, compliance information disclosure, should bear the corresponding legal responsibility, but not clearly defined, which makes it difficult to obtain the illegal disclosure of information should be There are punished. Third, the lack of regulation and punishment methods. How illegal for companies listed on GEM equity incentive regulation to regulate how the liability pursue offenders, currently there are loopholes and shortcomings, which gives regulators enormous risks.

(Two) regulation measures to face the previously described regulatory gaps, I believe, from the following aspects to be strengthened and improved:
First, promote and improve the companies listed on GEM equity incentive Legislation. Hysteresis and related systems for legislative gaps, the current must be accelerated specifically for companies listed on GEM equity incentive legislation, to develop specific rules to deal with companies listed on GEM equity incentive problems. As companies listed on GEM and the board, small board of listed companies there are more different, especially in terms of innovation, and thus their demand for talent higher than other companies, so the companies listed on GEM equity incentive system design and board, small board to be different, which requires advance its differentiated legislation.

Second, strictly limited to companies listed on GEM equity incentive target range and vesting conditions. First of all, to which companies listed on GEM equity incentive company employees, their incentive target range in the relevant rules must be strictly limited to avoid each listed company fragmented, chaotic implementation, thus affecting the positive effect of equity incentive system to play. Now, companies listed on GEM equity incentive target should be limited as follows: a listed company directors, supervisors and senior management, the core technology (business) people, and the company through the company's articles of association shall be recognized motivate other employees. Secondly, for the equity incentive grant restricted stock or stock option exercise or unlocked condition must be qualified through legal rules, strict rules exercise time, exercise options or stock number, proportion, prevent insiders through equity incentive interests of transport damage to the company and the interests of small investors.

Third, strengthen and improve the companies listed on GEM equity incentive information disclosure. Equity incentive plan development, exercise is controlled by the company's management, and the incentives they mostly target company's management, so the equity incentive legitimacy, rationality is only through full and timely disclosure of information to confirm and protection. GEM listed companies in order to ensure that the management equity incentive plan to be developed properly implemented, often in the interests of drivers, manipulating the exercise price. In the implementation process, companies are likely to draft in the equity incentive plan to conceal their own profits before the announcement, so as to achieve the purpose of price pressure, but wait until the stock price will go to the maximum cost of put options to subscribe for concealed prior to the current market profit diversion , thus contributing to enhance the share price, so that company executives would have earned a lot of money; even corporate executives do not rule out the use of authority to provide financial support Pianxiang incentive objects, or other false exercise, transfer of benefits. Therefore, timely and comprehensive information disclosure is particularly necessary, these disclosures include equity incentive plan, grant and exposure lock, false exercise and other important aspects of information disclosure. To guard against false exercised, the cash incentive target address to subscribe conduct full disclosure of the entire equity incentive oversight.

Fourth, improve the companies listed on GEM equity incentive to provide intermediary services bodies. 'Measures' provides that a listed company equity incentive plan formulation hire accounting firms, law firms and other intermediary institutions to provide professional accounting, legal services, if necessary, the independent financial adviser to the company's hiring equity incentive plan views. If these agencies to provide professional advice published false or misleading advice, it will be punished accordingly. See that these agencies are also important equity incentive regulatory power. Therefore, from a regulatory point of view to strengthen the agency's independence, impartiality should be monitored to prevent intermediaries in the provision of services to be bought and provide false opinions. Meanwhile, the introduction of intermediaries rating classification system, the use of punishment mechanism guiding mechanism plus the GEM listed companies to provide services to regulatory agencies.

Fifth, improve and strengthen the companies listed on GEM equity incentive mechanism for follow-up tax. The tax mechanism, our State Administration of Taxation issued in August 2009 issued a 'equity incentive issues concerning personal income tax notice' (Guo Shui Han [2009] No. 461), the listed company's equity incentive explicit personal income tax issues regulations. The notification requirement, because equity incentive income obtained SARs and restricted stock proceeds should be paid accordingly a tax, and details the determination of taxable income, the calculation of the tax payable, the taxpayer time of occurrence. But a closer inspection found that, according to the notification requirements, the listed company's equity incentive is usually 45% of the maximum rate applicable to the taxpayer produces relatively early point in time, with regard to the preferential tax-deferred equity incentive is also only for executives. This policy arrangements to some extent, had a negative effect, many equity incentive object only by focusing on selling stock to get the money to pay taxes. Obviously, this a serious departure from the long-term incentive equity incentive purposes, is not conducive to the healthy development of GEM. Therefore, you should make the appropriate amendments to the tax policy: First, learn from US-Japan and other mature capital markets in general practice, appropriately deferred tax liability arising equity incentive point, the point is adjusted to the actual sale, that after the actual sale of stock to obtain motivate staff only need to pay taxes; second is to expand the application of preferential tax object, executives outside the ordinary employees can also enjoy preferential tax.

IV Conclusion

GEM-listed companies based on their innovativeness of enterprises play a positive effect of equity incentives to respond to and meet the needs of creative talent, which is inherent in the GEM market mechanism design. However, due to the absence of relevant rules, the GEM listed company executives often makes the psychological benefits or reduce equity incentive is a departure from the original intention of the design of the system, evolved into a self-serving interests of the transport route. To this end, strengthen the system construction, improve the equity incentive mechanism design, sound Disclosure of information disclosure, will benefit companies listed on GEM equity incentive system forward implemented.

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