Move made to further regulate share incentives

By Wang Yanlin  |   2008-7-2  |     ONLINE EDITION

CHINA will further strengthen regulation over the share incentive scheme and raise requirements for stock options to executives of state-owned companies.

Any company that expects to launch a share incentive scheme must meet an earnings target of the average in the past three years, as well as the industry's average, said a supplemental rule issued by the Stated-owned Assets Supervision and Administration Commission.

Also, domestically listed companies can't issue more than 40 percent of total shares in stock options while the limit is set at 50 percent for red-chip companies. Red chips refer to mainland companies that are incorporated overseas.

To carry out the options, listed companies must regularly review the performance and meet the target set when the executives receive the stocks. They can't sell or transfer the stocks for two years.

The supplemental rule was issued after the stock regulator unveiled a rule earlier this year to prevent management officials from making improper gains from the share incentive scheme.

The earlier rule stated that a listed company can't carry issue new stock, inject assets or offer bonds within 30 days of having announced an incentive plan.

Also, a listed company should not introduce an incentive plan during a 30-day period after the announcement and execution of major decisions.

The rules were designed to lay a solid foundation to standardize regulation of share options and help build a healthy stock market, regulators said.