PropTech Link X Futu: From Design to Landing, An Equity-inspired Pothole Avoidance Walkthrough


On January 13, PropTech Link and Futu jointly held an online private session entitled “From Design to Landing: Equity Incentive Pothole Avoidance Guide”.PropTech Link is a real estate technology alliance initiated by China Jinmao and Huawei, with industry partners including DeepTech, Mingyuan Cloud, BKEJIAN Group and China Overseas Property.By linking real estate developers, innovative enterprises, investment institutions, colleges and universities, industrial parties and accelerating businesses and other industries, jointly promote the digital transformation of real estate.As a long-term companion of new economy enterprises, FUtu works with investment institutions, industrial alliances and other ecological partners to empower them.This cooperation private meeting, a total of more than 20 corporate executives to participate.At the private meeting, Geng Ke, managing partner of O ‘Melveny & Myers, Sun Xiaotian, executive Director of Corporate Services of FUtu, and Sun Wanjing, senior tax expert of Futu, respectively shared their profound insights on equity incentive and explained how to grasp the key steps of incentive plan from a practical level.Sun Xiaotian mentioned that according to the 2021 Equity Incentive Research Report released by Tripadvisor, Willis Towers Watson and Pulse, nearly 60% of the companies surveyed have equity incentive plans, which means that more and more enterprises are beginning to recognize the important role of equity incentive in the company’s business development.In fact, equity incentive as a long-term incentive mechanism throughout the whole life cycle of enterprises.Enterprises need to pay attention to different priorities in different stages, usually need to match the company’s long-term development plan and manpower scale planning and other factors, dynamic adjustment of incentive plan design and implementation.According to the past experience of Futu, Sun Xiaotian concluded that in the early stage of entrepreneurship, due to the small number of company, the work status is relatively clear, the selection of incentive objects and the number of grants can be determined in accordance with the importance of the incentive object and the degree of contribution.When the company develops to the growth stage or middle or late stage, it needs to use scientific methods to calculate the number of incentives and exercise costs.At the same time, we should adjust the option pool and focus on improving the exit mechanism.In terms of the choice of incentive tools, unlisted enterprises generally choose option, because stock option is the most flexible in practice, and a few companies will grant option and restricted stock at the same time.Options and restricted stock are gradually replaced and transformed after listing. Stock options are less and less, and restricted stock accounts for a higher and higher proportion.But Sun Xiaotian still stressed that the equity incentive mechanism needs to be tailored according to the specific situation of the enterprise, and with the subsequent enterprises to choose the listing path, in order to maximize the effect of equity incentive.As a long-established and leading international law firm, O ‘Melveny & Myers has extensive experience in equity incentives and overseas listings.At this private meeting, Geng Ke, managing partner of Beijing office of O ‘Melveny & Myers, sorted out and compared the characteristics of different equity incentive plans and suitable types of enterprises.In general, common equity incentive plan is divided into the following three: | share bonuses awarded or major shareholders of listed companies to stock incentive object, after the conditions such as meet certain performance and deadlines, incentive object can sell or continue to hold the shares.| option plan of the listed company awarded the incentive object a number of options, give it to a particular period of time at a certain equity share for a certain number of listed companies.| stock appreciation rights plan listed companies awarded the incentive object in a certain period and conditions, required share prices rise in the number of benefits to the right, incentive object of income is a stock market prices and appreciation rights prescribed by the stock price difference.The equity award scheme is relatively robust and there will be no dilution if the share award is awarded at market price after listing.Option plans are more flexible, and their nature of encouraging growth and sharing of value added fits well with the growth stage and orientation of the company.Stock appreciation plan is a kind of cash incentive. From the enterprise level, cash incentive tools will not affect the total capital and ownership structure of the company, and shareholders’ control will not be affected, which is commonly seen in some H-share companies.There is no absolute superiority or inferiority among the above three incentive plans. The key lies in the different applicable incentive scenarios.At the same time, Geng Ke said that when choosing equity incentive plans, enterprises also need to take into consideration other scenarios such as listing path, trust establishment and employee vesting, so as to avoid increasing subsequent operational friction and hidden costs.On the other hand, the tax payment involved in equity incentive is also the focus of many enterprises.Sun Wanjing, senior tax expert of Futu, mentioned that there are not a few enterprises whose incentive effect is greatly reduced because they ignore the tax payment of employees in the exercise and implementation stage.Take stock option as an example, the enterprise should make clear four important time nodes: grant date, grant date, exercise date and sale date.Of particular importance are the two nodes.The first is the strike date, which is the day an employee actually exercises his or her right to buy shares.The vesting date is the first taxable node, and the employee shall deduct the vesting price per share paid by the employee for the stock option according to the market price per share on the vesting date, and then multiply the number of shares to equal the income of the employee.This income is subject to tax as “wage and salary income”, which is taxed on file and accumulated throughout the year at a rate of 3%-45%.The second important point is the sell date, which is the day the employee sells the stock in the market after the stock actually belongs to the employee.The employee’s sale proceeds are taxed as “transfer income,” which is taxed at 20%.Correspondingly, different incentive tools need to clarify the corresponding tax payment time due to the different ways and time nodes of obtaining incentive income.In addition, At the private meeting, Sun Wanjing also explained the relevant regulations on equity incentive in the “No. 69 document” issued by state Administration of Taxation last year.The regulation requires enterprises to submit a report form on equity incentives to the competent tax authorities before the 15th day of the following month if they plan to implement equity incentives.If the equity incentive plan has been implemented but has not been completed, it shall submit the Report Form on Equity Incentive and relevant materials to the tax authority before the end of 2021.It can be seen that when equity incentive is more and more common, the corresponding laws and regulations are gradually improved and clear, and the operation guidelines are more standardized.In addition to the above content, the three speakers also actively interact with the participants in the private meeting, giving detailed answers to questions such as incentive tools, awarding rhythm, staff trust building and so on.In general, this private meeting combines different cases of the three markets to deeply explore the incentive pain points from scheme design to exercise and implementation, so as to help enterprises and employees have a deeper understanding of the arrangement of incentive plans at all stages.▎ Mr. Gengke is a leading lawyer in the China capital markets practice of the Managing Partner of Matenger’s Beijing office. He practices in capital markets, mergers and acquisitions, private equity financing, life sciences and healthcare, and provides consulting and legal services to clients in various industries.With a PhD in biochemistry and law, he has helped many life science and healthcare companies achieve their overseas listing goals.Recently, it has been recognized and recommended by chambers Guide to Greater China, an internationally renowned legal rating agency. It has also been ranked as one of the top 100 Foreign lawyers in China in 2020 and 2021 by The A-List of Commercial Law Magazine.▎ Sun Xiaotian graduated from City University of Hong Kong. He is currently the executive director of Futu Enterprise Service.With years of experience in the financial industry in Hong Kong, I am familiar with the regulation and operation of relevant markets, and have a deep understanding of the whole process practice of overseas IPO and ESOP.Led and participated in several service projects of leading enterprises in the industry, such as Kuaishou (1024.HK), JINGdong Logistics (2618.HK), Boss Zhipin (Bz.us), etc.▎ Wanjing Sun, master of Accounting at Hong Kong Polytechnic University, CICPA, HKICPA, CIA, has more than 6 years of personal income tax experience.Before joining Futu, he worked for a big Four accounting firm and engaged in compliance declaration, settlement and payment of individual income tax, planning consulting and other businesses.Rich experience in individual income tax policies in mainland China, Hong Kong, China and the United States.

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