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In 2020, SZSE made steady progress in comprehensively deepening capital market reform, earnestly carried out the reform of the ChiNext Board and the pilot project of the registration-based IPO system, further improved equity incentive policies and expedited the establishment of a long-term incentive and constraint mechanism, raising equity incentive efficiency, stimulating the internal impetus of listed companies to make innovation and boosting their high-quality development.
Vibrant equity incentive market tapped innovation potential
By December 31, 2020, 1,171 SZSE-listed companies rolled out 1,948 equity incentive plans involving 28.652 billion shares. Among SZSE-listed companies, almost half released incentive plans and more than 20% issued incentive plans in several tranches. In 2020, the equity incentives of SZSE-listed companies exhibited the following characteristics.
The number of incentives picked up. In 2020, SZSE-listed companies released 264 equity incentive plans, up 21.7% from 2019. From 2005 to the end of 2020, 502 companies issued more than two tranches of incentive plans, and 282 companies issued more than three tranches of incentive plans. Ongoing and rolling incentives have become an important way for SZSE-listed companies to attract and motivate talents.
Long-term incentives increased. In 2020, the duration of equity incentive plans on SZSE averaged 4.81 years. In particular, 248 incentive plans are with a valid period of 4 years or longer, accounting for 93.94% of all plans launched in 2020. 113 incentive plans were issued with duration of 5 years or longer, a year-on-year increase of 20.21% from previous year. With an eye on long-term development, more and more SZSE-listed companies lengthened incentive periods and secured their sustainable development with talent incentive support mechanisms.
Technology-intensive industries were active. Among the top 5 rankings in terms of the number of equity incentives were Technology-intensive industries including computer, communication and other electronic equipment manufacturing, software and information technology service, electrical machinery and component manufacturing, special equipment manufacturing, and pharmaceutical manufacturing, which cumulatively unveiled 56.94% of all plans, contributing to talent retention and unleashing their innovation potential.
Trial on the ChiNext Board enhanced incentive inclusiveness
In 2020, the reform of the ChiNext Board and the pilot project of the registration-based IPO system were steadily implemented. Category-II restricted stock incentive was introduced. In addition, market entities were offered more flexibility in aspects of grant price, incentive recipient, incentive percentage and incentive model. New equity incentive plans sprouted up like mushrooms, reflecting the characteristics of simultaneous advancement of incremental and existing market reforms and smooth transition between new and old rules and enhancing the sense of gain of listed companies and incentive recipients.
More flexible incentive models were adopted. From the enforcement of new rules to the end of 2020, 103 companies listed on the ChiNext Board disclosed their equity incentive plans. 61 companies used category-II restricted stock incentive, of which 59 were listed prior to the reform of the ChiNext board and registration-based IPO system. Prior contribution was not required for Category-II restricted stocks. Lock-up period may not be set. Such relaxation greatly reduced subsequent repurchase/cancellation situations, eased financial pressure on incentive recipients, streamlined the implementation procedures of companies and aroused the enthusiasm of listed companies for implementing innovative instruments.
Restriction of 50% discount was lifted on grant price. The new rules properly eased grant price restrictions and allowed the grant price of restricted stock to be lower than 50% of market prices as reference. Meanwhile, financial advisors were required to air opinions on pricing reasonableness. By the end of 2020, many listed companies such as Capitalonline (300846) and Yizumi (300415) adopted independent pricing to implement effective incentive plans.
Scope and ceiling of incentive were expanded. From the implementation of new rules to the end of 2020, 26 ChiNext Board listed companies (such as Winner Medical (300888) and Wondershare Technology (300624)) had their incentive plans covering shareholders holding over 5% of shares and de facto controllers and their spouses, parents and children. The cumulative incentive equities of 7 ChiNext companies exceeded 10% of total share capital. The incentive plan spurred the initiative of key personnel for corporate business expansion, research & development and innovation and served as a new method for entrepreneurs to reinforce control.
Market-oriented reform was put into action to effectively enhance implement effectiveness.
In 2020, SZSE remain committed to market- and law-based reform, and improved basic rules, business process and implementation efficiency, boosting the high-quality development of listed companies.
Relevant supporting rules were continuously refined in line with the service based principle. SZSE formulated Guidelines No. 5 for the Business Conduct by Companies Listed on ChiNext Board - Equity Incentive and Guidelines No. 9 for the Business Conduct by Listed Companies - Equity Incentive, defining category-II restricted stock, refining information disclosure requirements on equity incentive grant, registration, restriction removal/option exercise and other links and facilitating operations by market players.
Process was adequately controlled to forestall and defuse operational risk. We comprehensively revised and streamlined equity incentive business process, updated equity incentive announcement categories in the business management system, identified operational risk in key business handling nodes, and determined appropriate risk control measures for different businesses. All these have helped realize the institutional, standard, procedure-based and electronic regulation of equity incentive.
Regulatory quality and efficiency were improved on an ongoing basis, with the focus on information disclosure
In 2020, SZSE conscientiously performed the self-discipline regulation responsibilities, highlighted concurrent and post-event regulation, clarified the responsibilities of intermediaries and took a range of measures to enhance regulatory effectivene
The concept of “easy access and strict regulation” was upheld. There are circumstances that the performance indicators of different incentive plans differ greatly at early and late stages, that the assessed indicators are improperly set or randomly changed, that the implementation procedures are not in compliance with regulations and that there is suspected tunneling. Considering such cases, we stepped up regulation efforts. Throughout 2020, we issued 59 letters such as letters of attention and inquiry, giving full play to the warning and correction role of frontline regulators and protecting the interests of listed companies and the legitimate rights and interests of small and medium-sized shareholders.
Intermediaries were urged to duly perform their duties. First, intermediaries were asked to express clear opinions in respect of corporate performance assessment indicators, assessment period setting and assessed indicator change reasonableness, bringing their role as market "watchdog". Second, regulatory information and orientation were conveyed to listed companies. They were required to fully assess the financial advisory firms to be engaged and their practice quality, so as to ensure the firms have professional competence and sound arrangements for internal control.
Equity incentive is an important system for listed companies to effectively mobilize employees and realize product and technology innovation through interest sharing mechanisms. Next, SZSE will thoroughly implement the guiding principles of the fifth plenary session of the 19th CPC Central Committee and Central Economic Work Conference, further serve the real economy, remain committed to service innovation and entrepreneurship position and constantly perfect incentive and constraint mechanisms to bring out the innovation potential of talents. In addition, we will tighten regulations on incentive exceptions, guide listed companies to implement equity incentive in a compliant and effective manner to improve their corporate governance, increase support to technical innovation and advance high-quality circulation of technology, capital and real economy.
