CHINA has released long-awaited guidance on employee stock ownership plans, but analysts expect more policies, such as tax benefits, to be in place before the mechanism proves effective.

    The China Securities Regulatory Commission (CSRC) on Friday allowed employee stock ownership plans to be piloted in listed firms on a voluntary basis, as long as total stocks owned by employees account for no more than 10 percent of the firm’s share capital.

    For each individual employee taking part in plans, such proportion shall be kept at no more than 1 percent.

    The document also stipulates how long the stock shall be owned by an employee, as well as requirements on information disclosure.

    The employee stock ownership plans, in which firms provide employees with stock ownership to allow them to enjoy share entitlement under certain conditions, is a widely-used method to increase efficiency and internal growth of a firm in developed securities market.

    Previously, China introduced plans that encouraged only senior executives to own stakes in listed firms.

    The CSRC began to solicit public opinions on the draft employee stock ownership plan regulation in August 2012. But it was only last month the State Council made it clear in a document “to improve stock incentives of listed firms and allow them to carry out employee stock ownership plans in various forms by regulation.”

    The nod from the State Council was also in line with the task to diversify the ownership of State-owned firms and develop a mixed-ownership economy, one of the reform priorities set in a key plenum of the Communist Party of China in November 2013.

    In fact, de facto employee-owning-stocks phenomena are not uncommon in China’s A-share market. CSRC data showed that by the end of 2012, 74 percent of listed firms had employees holding stocks of their own firms.

    However, without regulation, the real employee stock ownership plan, as an incentive plan and a management tool, did not exist in China.

    Friday’s guidance is conducive to standardizing the existing phenomena of employees holding stocks, and establishing and improving a profit-sharing mechanism between employees and owners, according to CSRC spokesman Zhang Xiaojun. (Xinhua)