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Employee stock ownership plan raises concerns in China (2)


08:18, August 07, 2012

But it might not be possible to realize this incentive effect, said Li Kening, director of the International Business School at Beijing Language and Culture University. Li said big companies tend to emphasize participation by senior executives, giving only a small proportion of shares to a large number of employees.

Although the draft rule limits any individual employee to a 1 percent stake in a company through an ESOP, the rule wouldn't prevent a higher concentration of individual stock ownership.

Zhou said the rule doesn't prevent executives from buying more stock on their own outside the plan, meaning top executives could still own most of a company's stock.

China Construction Bank set up an ESOP in July, 2007, with 270,000 qualified employees owning stock valued at 800 million yuan (about 125.6 million U.S. dollars). China Economic Net criticized the plan as just a salary increase in "disguised" form.

"Such a tiny piece of cake" drags employee ownership down to a "superficial" level that might trigger insider trading problems, Li said.

As for the stipulation in the new regulation that ESOPs must be managed by a third-party asset management company, Li said this will help combat insider trading.

But Zhou of Renmin University said it will be useless if companies and agencies collude with each other.

The draft measures are "too general" and don't make a specific effort to deal with this problem, Zhou added.

"For an ordinary employee like me, it is very hard to believe that a third party will be totally independent and objective," said an anonymous worker from the Bank of China Monday.

Fortunately, the regulation at least provides companies and asset management agencies with a big opportunity to change their old image in business management if they can perform better in safeguarding workers' rights and interests in terms of stock ownership, Zhou said.

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