After issuing Interim Measures on Equity and Dividend Incentive of State-owned Technological Enterprises (“Interim Measures” for short), State-owned Assets Supervision and Administration Commission (SASAC) of the State Council released a Circular on Doing Well in Equity and Dividend Incentive of Central Technological Enterprises (“Circular” for short) on Nov. 22 so as to further practice relevant policies. Li Jin, chief researcher with China Enterprise Research Institute said to journalist from SSN that “central SOEs’ incentive mechanism for scientific and technical personnel is imperfect for a long time. Scientific and technical brain drain to private enterprises and foreign enterprises has become a prominent and sensitive problem and influences development of central SOEs. The release of this document means the start of stimulating scientific and technical talents of central SOEs aiming to prevent brain drain.”
Specifically, in terms of coverage of the incentive, the Circular explicitly proposes to support enterprises or projects, which are in accordance with strategic deployment of New Planning on National Scientific and Technological Innovation during the 13th Five-year Plan Period and key research & development of scientific and technological innovation of central SOEs and have stronger innovative ability, higher achievement technology level and better market prospect, to implement equity and dividend incentive.
According to the Circular, the incentive involves equity and dividend. Dividend incentive includes incentive for post and project. The SASAC puts forward different requirements for different incentive. As for dividend incentive, the Circular proposes to encourage qualified enterprises to provide dividend incentive based on post and enterprises whose commercialization of research findings and income and expenses of projects are clear can choose dividend incentive based on project. As for equity incentive, it suggests appropriately implementing equity incentive and enterprises should push forward the incentive plan step by step based on pilot experience.
In order to avoid excessive incentive, the SASAC states clearly that one enterprise should adopt either equity incentive or dividend incentive at early stage. They can only take one incentive method and offer incentive for only one time for the same incentive object in terms of the same post, scientific and technological achievement or industrialization project.
As for supervision and management, central SOEs should include equity and dividend incentive plan in their budget and the total amount of dividend incentive will be counted in budget of gross payroll. Meanwhile, the Circular also imposes restriction on incentive amount and incentive conditions.
The Circular proposes to establish and improve salary system for scientific and technological innovation talents according to their achievements and contribution and properly widen income distribution gap between incentive objects based on scientific evaluation on research team and individual performance. Relation between the amount of dividend incentive based on post and management of total salary should be balanced so as to avoid mismatching in salary due to implementation of dividend incentive. Enterprises should decide incentive level, redemption means and responsibility for breach of contract and determine the amount of incentive based on project scale and marketization degree.
Regarding incentive condition, the Circular requires that central SOEs are not allowed to lower qualification and criteria abiding by relevant regulations of Interim Measures when practicing equity and dividend incentive. In terms of equity incentive, they should set up corresponding assessment method and strengthen management on matters like awarding and exercising. As for dividend incentive based on post, enterprises should specify indicators for annual performance assessment. As for dividend incentive based on project, enterprises should establish and improve financial management systems such as project cost accounting, scientific and technological achievement evaluation and earnings and provide incentive in strict accordance with agreement with incentive objects.
The Circular also puts forward establishing working mechanism with management by different levels. As a supervision and administration department, the SASAC will focus on policy instruction and supervision over execution besides reviewing incentive proposals of central enterprise groups. Central SOEs are the major body of implementing equity and dividend incentive policy and are responsible for establishing, implementing and managing equity and dividend incentive system for themselves, reviewing incentive proposals of scientific and technological enterprises and responsible for its compliance.
It is also regulated in the circular that central SOEs should report to the SASAC before the implementation of their overall work schemes and advancement plans for equity and dividend incentives. The incentive plans, based on the ratio of contributions, should be sent to the SASAC or the groups of central SOEs for approval, respectively. No enterprises are allowed to put their incentive plans into effect without authorization.
As to procedures for examination and approval, insiders of central SOEs remarked that “incentive plans will play a better role if the rights of examination and approval can be delegated to the upper authority of enterprises mulling on incentives. For instance, the incentive plans of level-3 central SOEs can be implemented after being nodded by level-2 central SOEs. Given that multiple levels are widely set in central SOEs now, longer cycle and more complicated procedures for approval will be required if the groups are responsible for approving the dividend incentives of all subsidiaries”.
In addition, Li suggested that “the SASAC must assign departments to approve enterprises’ incentive plans. The approval of equity incentives for technicians in central SOEs better subject to more-efficient technology experts committee rather than general administrative approval”.
Translated by Jennifer and Vanessa
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