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The government will soon introduce a stock option scheme for managers at China's overseas-listed state-owned enterprises (SOEs), which analysts say is an important step in promoting the healthy growth of the companies in the long run.

A management incentive stock option program for overseas-listed SOEs, drafted by State-owned Assets Supervision and Administration Commission (SASAC), will take effect from March 1, an official from SASAC confirmed yesterday. The official declined to give more details.

Management incentive stock option plans, a frequently used form of executive compensation in public companies in many countries, grant management the right to buy a specified number of shares at a stipulated price during a specified time.

Under the stock option plan, management will be motivated not to indulge in shortsighted business moves, as their compensation is related to their companies' performance in the longer term, said Liu Jipeng, director of Company Studies Centre at Capital University of Economics and Business.

Consequently, Liu said, the stock option plan offers a better incentive than other plans fostering the company's healthy long-term growth.

"The application of (the management stock options incentive) scheme in overseas-listed SOEs is an important step to improve their corporate governance," said Wang Zhigang, director of the Company Reform and Development Studies at a think-tank affiliated to SASAC.

According to the SASAC's new rule, employees at China's overseas listed SOEs that are entitled to participate in the stock option plan primarily include directors (both executive and non-executive directors), senior managers, core technology professionals and key management personnel.

The rule also stipulates that top-level managers at overseas-listed SOEs parent companies are only allowed to participate in one listed subsidiary's stock option incentive scheme.

Launching of the stock option plan, experts say, is a long overdue undertaking.

"Introduction of the (stock option) plan should have been done long before as it has existed since the 1970s in public companies in the US and other countries," said Professor Liu. "Compared with other incentive schemes such as the annual bonus system, which increases companies' operating costs, the stock option plan is a better choice."

Introducing a similar plan in domestically-listed SOEs is expected to happen within this year, Wang said.

"SASAC is likely to introduce stock option plans in domestically-listed SOEs this year , probably in the latter half of this year," Wang said.

The introduction of the management stock option plan, which has been in discussion for many years, is the latest move in the government's efforts to reform SOEs.

Last month, SASAC relaxed a ban on management buyouts in large-scale SOEs, allowing executives in those companies to purchase limited shares of the company in which they work.

(China Daily February 23, 2006)