Equity Incentive Case | How can a cross-border communications company establish a long-term incentive mechanism without changing its registered equity?
Cross-border growth companies want to stabilize their core teams with equity, but they may not be suitable for employees to become registered shareholders immediately. The service object of this project is an enterprise carrying out communication network construction, fixed broadband and information service in Southeast Asia. Chen Hui's team of lawyers did not start with "how many shares to take out", but first judged what contributions the company wanted to exchange for long-term earnings, and then connected performance, continuous service and exit rules with virtual equity.
1. project background: enterprises shift from project construction to organized operation
myanmar XX company is mainly engaged in optical fiber access, transmission network, fixed broadband, network planning, computer room construction, Internet access and related information services. The communication network business has a large initial investment and a long project cycle, and the market, construction, technical operation and maintenance, finance and comprehensive functions must be coordinated for a long time. At the time of this project, the company was promoting network construction, user development and team expansion, and the management approach was gradually shifting from direct command by the person in charge to job division, process management and target management.
Enterprises not only need to stabilize the Chinese management, technical and construction personnel who have been working abroad for a long time, but also need to enhance the participation of local employees in business objectives. They also hope to establish differentiated returns for pioneers in new projects and new regions. If we still rely mainly on fixed salaries and temporary bonuses, it is difficult for core personnel to see long-term benefits, and it is difficult to form a continuous link between departmental goals and the company's development goals. Therefore, the customer proposed to establish employee equity incentive mechanism.
The core issues facing 2. customers
first, does the company really need registered equity, or conditional long-term earnings rights? The direct grant of registered shares will bring new shareholder registration, voting coordination, cross-border compliance, employee turnover repurchase and corporate control management costs.
Second, which people are worth entering the long-term incentive range? The length of service can reflect stability, but can not replace the evaluation of job value, professional ability, performance, professional ethics, cultural identity and future contribution.
thirdly, how does the incentive income connect with the operating results? the company's performance, department tasks and individual performance must have indicators that can be collected and reviewed, otherwise the equity incentive will easily become fixed welfare or year-end temporary distribution.
Fourthly, how to quit when an employee leaves, transfers, violates discipline or fails to meet the long-term performance standards? Design-only grant, non-design qualification termination, unrealized income and share recovery often turn incentive arrangements into new disputes.
Fifth, how does cross-border implementation take into account corporate governance, labor relations, taxation, foreign exchange, payment and dispute resolution? Not changing the registered equity does not mean that there is no need for local legal adaptation.
Difficulties in 3. projects: incentive tool selection is only the starting point, continuous operation is the key
the first difficulty of the project is to balance the sense of team acquisition with the founder's control. The rights of real shares are complete, but cross-border employee mobility and exit registration increase the cost of governance.
The second difficulty is that different nationalities and cultures and positions are difficult to use the same evaluation scale, sales positions are easy to quantify indicators, and the long-term value of construction, technical and back-office positions needs to be reflected through different indicators.
The third difficulty is to turn multi-year revenue commitments into enforceable systems. Object selection, performance setting, data collection, dividend decision-making, deferred payment, objection review and exit processing must be linked to each other. If there is only one virtual equity agreement, but no executing agency and execution process, the program is likely to stop running after the end of the project.
The fourth difficulty is that new market development is different from daily job contribution. The higher risk and longer cycle of personnel taking on new regions and projects makes it difficult to accurately reflect their strategic contribution if they are still motivated by ordinary positions; however, a permanent equity commitment may increase the cost of future equity structure design and financing adjustments.
Analysis and Solution of 4. Lawyer
the project team first conducts data research, regulatory analysis, interviews, anonymous questionnaires and comprehensive diagnosis, and identifies the company's development goals, key positions and management foundation by combining annual work data, organizational structure, human resources assessment, benefits and compensation structure. The survey shows that enterprises still have room for improvement in market promotion, process collaboration, talent stability, training and performance management. As a result, the project does not regard equity incentive as an isolated means, but positions it as a long-term benefit distribution system in organizational transformation.
In the choice of incentive tools, lawyer Chen Hui believes that customers need long-term income rights at this stage instead of increasing registered shareholders on a large scale. The plan takes virtual equity as the core. The incentive objects are not registered as shareholders of the company, do not obtain voting rights, and their shares cannot be transferred or pledged. When the company has distributable income and the agreed business objectives and performance conditions are realized, employees share the income according to the regulations, this not only responds to the core team's long-term return expectations, but also prevents employees from directly entering the shareholder level to affect the original control structure.
In terms of target selection, the program establishes a business partner selection mechanism, which integrates job criticality, service, professional ability, performance, professional ethics, cultural identity, confidential competition obligations and future contributions, which are evaluated by a dedicated organization and confirmed by the company's authorized decision makers. This mechanism allows long-term incentives to shift from human judgment to interpretable system evaluation, while retaining access for subsequent new core personnel.
In terms of profitability, the programme incorporates corporate, departmental and individual performance into the calculation and sets different indicators for the market, construction, network, finance and general sectors. The system covers target setting, data collection, result confirmation, performance communication and objection review, so that dividends and qualification adjustments have a relatively objective basis.
In terms of timing, the program sets up a multi-year incentive cycle and deferred dividends, so that part of the proceeds are cashed in stages, in exchange for long-term returns for continuous service and future performance. The project also sets up an equity incentive management committee, which is responsible for the review of incentive objects, share recommendations, performance review, dividend calculation and exit coordination.
In the exit design, the program distinguishes between normal exit and fault exit, and treats the termination of eligibility, current year's earnings, historical deferred earnings, share return to the reserve pool and loss compensation separately. Different consequences shall apply to employees leaving due to normal organization adjustment and serious violation of discipline, violation of confidential non-competition obligations or damage to the interests of the company. The simultaneous design of grant and exit protects the enterprise and enables employees to understand the boundaries of rights when they join.
5. project results
the project has formed equity incentive management methods, business partner selection methods, performance management methods, management committee working rules, virtual equity incentive agreements, performance commitment documents, post evaluation forms at different levels, behavior index scoring forms and research tools, which constitute a closed loop of documents for incentive objects to enter, assess, grant, cash out, adjust and exit.
6. Case Revelation
1. Equity incentives should first answer what the company wants in exchange. For example, if an enterprise wants to stabilize its core technology or promote market development or train management successors, the incentive targets selected, the incentive tools adopted and the incentive period are all different.
2. Not all core employees must become registered shareholders. Enterprises should choose between real shares, options and virtual equity based on valuation basis, personnel movement, company control and future equity investment and financing plans.
3. Incentive objects and shares cannot be based solely on the impression of the boss. Job value, ongoing performance, ethics and future contributions should form interpretable and reviewable entry criteria.
4. Equity incentives are not a substitute for performance management. Without a data base at the company, sector and individual level, there is a lack of basis for dividend equity, share adjustments and exit judgments.
5. Grant, landing, cashing and withdrawal must be designed at the same time. Multi-year incentive cycles, deferred payments and differentiated exits can avoid a one-time post-grant contribution decline that cannot be adjusted, as well as leaving room for new core staff to motivate.
6. Cross-border incentives must verify local laws and payment routes in advance. Applicable laws, tax filings, foreign exchange payments, non-competition and dispute resolution should be confirmed before the employee has a clear earnings expectation.
Introduction to 7. Lawyers
lawyer Chen Hui, senior partner of Guangdong
and executive dean of Zhiheng College, has long focused on corporate legal practices such as corporate equity design, cross-border equity structure design, corporate control, equity incentive, equity investment and financing, merger and reorganization, and shareholder disputes. He has long-term experience in corporate management and corporate equity legal services, and is the author of "Excellent Partner-Equity Design and Incentive" and "A Book to Understand Partner Mechanism".