China Considers Broad-Based Employee Ownership Plan
Executive Director
On August 5, the Chinese news agency Xinhua announced that the China Securities Regulatory Commission had issued a draft of regulations that would allow employees of publicly traded companies to use a portion of their compensation to purchase shares in their companies. This would represent a significant policy change for China, where existing plans only apply to senior managers.
The new plans are called employee stock ownership plans, or ESOPs, but they would differ from U.S. ESOPs in many ways. Unlike U.S. plans, which are generally retirement plans in which all or most employees participate, employees under the proposed Chinese ESOP would have to choose to use a portion of their compensation to purchase shares. They would also be able to sell those shares after 36 months.
The plan, which Xinhua said was expected to "help increase efficiency and comprehensive strength of a listed company," has drawn mixed reviews. Critics note that the plans would cause dilution of existing shareholders and point out the uncertain tax implications, which are still being negotiated. Employer stock would be managed by an independent asset management company, but professor Zhou Ye'an of Renmin University worries that the law is not sufficiently detailed to prevent the asset managers from colluding with company management.