September 25, 2006

(Greenwich, 9/25/2006) While we are whining about stock option scandals and tying magers up in Sarbanes-Oxley knots Chinese companies are discovering the magic of incentives. Bank of China (BOC) and China Construction Bank (CCB), two of China’s top four commercial banks, will initiate employee stock ownership plans this year as part of their employee incentive programmes. BOC’s shareholders already approved a stock appreciation rights policy for the management team (secret code for stock options). Regulators support the idea. You can read the story by clicking here.

According to a CCB press release:

The implementation of such plans is to increase the bank’s cohesion, to harmonize benefits for employees and shareholders, and to reduce the bank’s operational risks. We expect to build up our core competitiveness by attracting more talent and improving innovation through the employee incentive programmes.

Sound fammiliar?

CCB will allow its employees to hold 1 to 2 per cent of its total shares, which means each staff member will be able to buy 52,000 yuan (US$6,500) worth of stocks on average, according to the bank’s current market value on the Hong Kong stock exchange. The 300,000 employees will be able to hold around 4.5 billion shares, with a total market value of HK$15 billion (US$1.95 billion).

In May, Zhou Xiaochuan, governor of the People’s Bank of China, encouraged State-owned financial institutions to adopt employee stock ownership plans for the first time. “The employee stock ownership plan is an important part of financial institutions’ joint stock reform,” Zhou said earlier.


John Rutledge

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