股权激励外文翻译可编辑.docx
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股权激励外文翻译可编辑.docx
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股权激励外文翻译可编辑
股权激励外文翻译(可编辑)
股权激励外文翻译
外文翻译
原文
EQUITYBASEDINCENTIVES
MaterialSource:
SocietyProfessionalsAuthor:
RichardD
StockIncentiveSystemSIS,isasystemacompanyadoptstoincentmanagersorordinaryemployees.Inthissystem,toincentmanagersorordinaryemployees,acompanywillmakethembecomestockownersbyassigningasumofstocksorstockoptionstothem.StockIncentiveSystemResearchonOutstandingAchievement,isaresearchbaseontheexistingStockIncentiveSystem.Thisresearchemphasizesonanalyzingthepertinencybetweensystemstructureandoutstandingachievement.Bydoingtheresearch,theauthortriedtosetupapertinencerelationbetweenpracticingSISandcarryingoutoutstandingachievementtoenhancetheefficiencyofaStockIncentiveSystem.Inthisthesis,theresearchisfocusedontheproblemsofoutstandingachievementdeviation,capitalresourceforbuyingoptionsorstocks,andshortsightofmanagers.AlotofdataandcaseshavebeenadoptedtofindoutthebugsfromtheexistingSISandsetupanewmodeltoenhancetheefficiencyoftheSIS.Inthisthesis,theauthordemonstratesthefollowingideas.1.Fortheweak
pertinencebetweenstockpriceandoutstandingachievementunderthecircumstanceofthecapitalmarket,itisstronglyrecommendedthatthestocksfromSISnotcomeintothemarket,oritwillbeinefficientforincentingmanagers,furthermore,itmaycauserisksofdeceivingtoincentmarketprices,whichwillruinthecompanyandshareholdersutmostly.Thenhowtopricetheincentivestocks,andhowcanthestocksbeencashed?
Inchaptertwo,apricingmodelofEVAhasbeensetuptoanswerthequestions.Inthismodel,thereislinearitypertinencebetweenthestockpriceandEVA.Whilepricedbythismodel,theincrementofstocksgetanonlyresourceofoutstandingachievementmadebymanagers,whichwillincentmanagerstoworkhardtoincreasestockprice.Inthismodel,wecanalsofindoutthatthecapitalresourceforstockencashmentisexercisecapitalandEVA.2.Anfavorableexercisecapitalresourcemaybebuiltuponcapitalbonus,whichwillenhancetheefficientofSISbyformingabenignincentivecirclesystem.ThissystemisnamedCapitalBonusExercisingSystem.Sincethecapitalbonusistheonlyresourceforexercise,andweknowthatmanagers’outstandingachievementistheonlyresourceforcapitalbonus,moreoutstandingachievementcausemorebonus,morebonuscausefasterandbiggeramountexercise,moreexercisecausebiggershareholdformanagers,andbiggershareholdwillcausemoreincome,whichwillincentmanagerstoworkharder,thenabenignincentivecirclesystemisformed.3.SinceanSISisusedtogetalong-term
incenting,themanagers’stockholdingperiodmustbequitelong,and
aruleofexercisingandencashingbatchbybatchmustbeprescribed.Firstly,theholdingperiodmustbequitelongtorealizelong-termincentivefunctionofSIS,oritwillbenotbetterthanacashbonus.Fortheincentivefunctionwillvanishonceencashed,thestockholdingtermmustbesetlong.Secondly,optionsorstocksmustbeexercisedorencashedbatchbybatchintheholdingperiod.Sincethemanagersarewithcash-predilection,intheotherword,short-termincomefavoritism,ifmanagerscannotgetincomebeforetheendofthelongterm,theirshort-termincomefavoritismcannotbefulfilled,andthenincentivefunctionofSISwillbeweakened.Togetaharmonybetweenlong-termandshort-termincenting,optionsorstocksmustbeexercisedorencashedbatchbybatch.Furthermore,thisprescriptiondividingmanagersstockincomeintobatcheswillpreventmanagersfromrisksofshortsight,andthenthecompanycanescapefromdisasterslikeEnronandWorldComevermet.ThisthesisisapilotstudyonStockIncentiveSystembasedonoutstandingachievement.ItinsiststhatpractisingaStockIncentiveSystemshouldbeabletoincentmanagerstocarryoutoutstandingachievementandtheincentivetermshouldbequitelong.Andtogettheseeffects,thekeyissuesaretosetupEVAmodelsandbuiltupabalancebetweenshort-termandlong-termincenting.Andmostoftheauthor’s
effortsarebeingtakentosettlethesetwoissues.
Theuseofequityasakeycomponentofexecutivecompensationisprobablythemostdifficultandcontroversialissueormanagebythecompensationcommitteeofacorporatehoardofdirectors.Intheory,equity-basedcompensationshoulddrivemanagementtobehaveinamannerconsistentwiththewishesoftheshareholders.Thiscolumnfocusesonthethreemostprevalentequityawards.
NonqualifiedstockoptionsNSOsarebyandlargethemostcommonequityincentivearrangementExecutivesmaybuystockataspecifiedpricegrantforagivenperiodoftime.Compensationderivedfromtheappreciationinthestockpricebetweentheoptiongrantdateandtheoptionexercisedateistaxedorordinaryincometaxrates.NSOscanbeexercisedinanysequence.
ThereisnotaxableincometotheexecutivetriggeredbytheoptiongrantAppreciationfromthegratepriceistaxedatordinaryincometaxratesuponexercise.Forexample,agrantpriceof$50andanexercisepriceof$75createordinaryincomeof$25.Thecompanyisrequiredtowithholdanexecutive'staxesatexercise.Thiscanbeaproblembecausetheexerciseoftheoptionitselfdoesnotgeneratecashfortheexecutive.Whentheexecutivesellsthestock,anyfutureappreciationfromtheexercisepricetothesalepriceistaxedatcapitalgainrates.
Thereisnotaxdeductionforthecompanyasaresultofgrantinganoption.Thecompanydoesreceiveataxdeductionequaltothe
executive'sordinaryincomewhentheoptionisexercised.Thereisnoimpactonthecompanyfromanysubsequentsaleofthestorkbytheexecutive.
Advantageoustousersofnonqualifiedstockoptionsistheideathatsucharrangementsareanattempttoalignexecutiveinterestswithshareholderinterests.Therearenolimitationsontheamountthatmaybeexercisednonqualifiedoptionsarelessdilutivethanincentivestockoptionsandthenonqualifiedvarietyofferpotentialforlongtermappreciationasthecompanygrows.Thedisadvantageofanonqualifiedarrangementisthatexecutiveinvestmentisrequiredattwodifferentintervals-First,toacquirethestockandsecond,tosatisfythetaxliability.Also,NSOsdiluteearningspersharethroughcowmanstackequivalents.
Thereisnochargetocorporateearningsunlesstheoptionpriceisvariableorislessthan100%offairmarketvalueonthegrantdate,orunlessthecompanyhaselectedmaccountforstockoptionsunderFASB123.WhereFASB123isused,thereisachargetoearningsthatiscalculatedbasedontheestimatedfairmarketvalueatgrantdareusinganoptionpricingmode!
IncentivestockoptionsLSOsareoptionplansthatmeettheguidelinesofIRCSec.422.Theymustbegrantedtoemployeeswithanexerciseperiodnottoexceed10years.Thegrantpricecannotbeforless
thanfairmarketvalueatthetimethattheoptionisgranted,andtheoptioncannotbetransferable.ISOswithanaggregatevalueof$1000000cannotbegrantedtobefirstexercisableinanygivenyear.
TheexecutiveincursataxliabilityonlywhenstackobtainedthroughanISOissold,andnotwhentheoptionisexercised.Thus,gainsaretreatedatcapitalgainrates,providedtheexecutivedoesnotdisposeofthestockuntilthelateroftwoyearsfromthegrantoftheoptionoroneyearfromreceiptofthestack.Asordinaryincometaxratesincrease,ISOsbecomemoreattractivetoexecutivesbecausethetaxisdeferreduntilthestockissold.
Thecompanyreceivesnotaxdeductionuponexercise,whichcanmakeISOsanexpensiveequityvehicletoofferfromacompanypointofview.However,ifthecompanyisinaloweffectivetaxbracket,thelackoftaxdeductibilitymaystillbeafairtradeforthebenefitprovidedtotheexecutive.
AmajorISOadvantageischartheexecutivehascontroloverthetimingofthetaxableeventsaleofstockandnotexerciseoftheoption.Thisprovidestheexecutiveanopportunitytodobetterlong-termtaxplanning,includingtheabilitytodeferincomewithouttaxationandpossiblypaytaxesatthelowercapitalgainsrates.Fromacompanyperspective,themaindisadvantageofanISOarrangementisthelackofacompanytaxdeductionwhenanexecutiveexercisesanISO.Fromthe
executive'spointofviewtherearetwodisadvantages.ThefirstoneistheholdingperiodofiS0shares:
thelongeroftwoyearsfromgrantoroneyearfromthereceiptofthestuckinordertoreceivecapitalgainstreatment.TheseconddisadvantageisthattheexecutiveislimitedtobeinggrantedISOsofupto$I00,000thatareexercisableforthefirsttimeinanygivencalendaryear.
Finally,ISOsthathavenotbeenexercisedareconsideredcommonstockequivalentsandarefactoredintothedeterminationofearningspershare,andtheycanhaveadilutivecostimpactonthecompany'searningspershareandbalancesheetifthestockpriceappreciates.
Restrictedstockisanoutrightgrantofsharestoexecutives.Thisoutrighttransferofstockhasrestrictionsastothesale,transferandpledgingofthegrantedsharesthatlapseoveraperiodoftime.Therestrictionscanbeforthreeorfiveyearsorforwhatevertimeperiodisdesiredbythecompany.Astherestrictionslapse,theexecutivehasanunfetteredrighttosell,assign,pledge,encumberordowhateverheorshedesireswiththeshares.However,iftheexecutiveterminatesemploymentallunvestedsharesareforfeited.Duringtherestrictionperiod,theexecutivewillreceivethedividendsontherestrictedsharesandalsobeabletovotetheshares.
Totheexecutive,noindividual
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