Can operators’ equity incentives motivate core employees?

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In modern enterprises, equity incentives are very common. For most startups, equity incentives are necessary to stimulate personal responsibility and create an atmosphere of hard work. Of course, it is also because of the existence of equity incentives that some startups have created hundreds of young billionaires after going public.

In this situation, people working in the operator are envious. Even if there is no such opportunity, some companies will issue 100 shares worth tens of thousands of yuan during the New Year and other holidays, which is also a happy thing. The employees of the operator can only applaud on the sidelines.

In November 2019, relevant departments issued the "Notice on Further Improving the Equity Incentive Work of Central Enterprises' Listed Companies", encouraging central enterprises to use equity incentives to stimulate the enthusiasm of their core backbone employees.

In June 2020, the board of directors of China Mobile approved the granting of 306 million stock options to 9,914 management backbones and core talents, with an exercise price of HK$55.00 per share. The granted stock options will be opened in three batches, with the exercise ratios of 40%, 30% and 30% respectively 24 months, 36 months and 48 months after the grant date.

Subsequently, in the 2021 stock appreciation rights grant plan for core backbone personnel disclosed by China Telecom, the company proposed to grant up to approximately 2.412 billion stock appreciation rights to a total of approximately 8,300 core backbone personnel (excluding the company's executive directors, non-executive directors, independent directors, supervisors and senior management).

For China Unicom, equity incentives have already been implemented due to the previous mixed ownership reform. In February 2018, the first phase of the A-share China Unicom equity incentive plan granted no more than 848 million restricted shares to incentive targets, of which 44.856 million shares were reserved. According to the list, a total of 7,855 Unicom employees were shortlisted for this equity incentive plan, accounting for about 3% of the total number of Unicom employees, involving middle-level managers, core management talents and professional talents.

We should not only ask, how much effect will such equity incentives have on the operation of operators?

First, the scope of equity incentives is not large, and it is mainly targeted at "key personnel". The three operators combined have only 26,000 people who enjoy equity incentives, while the total number of employees exceeds 1.5 million. In other words, only 1.7% of the staff are lucky enough to participate, which is too small.

In addition, unlike Internet companies, where equity is locked up for a certain period of time, in order to avoid the loss of state-owned assets, the equity incentives of operators are basically linked to the stock price. In the current stock market situation, it is indeed of little value.

For example, the exercise price of China Mobile must be higher than HK$55, and the exercise price of China Unicom’s shares must meet the company’s revenue and profit conditions.

China Unicom's incentive plan has a 24-month lock-up period, after which it will be unlocked in three years, with annual unlocking ratios of 40%, 30%, and 30%, respectively, and with relatively stringent performance assessment conditions. The grant price of China Unicom's restricted shares is 3.79 yuan per share, and the current price of Unicom's A shares is 4.09 yuan per share. Even if the rights are exercised, there is almost no profit. China Mobile's stock price has also fluctuated greatly, and the current price is basically around the exercise price, with no room for profit.

To sum up, the audience is small and the benefits are not great, so the operator's equity incentive has not been fully utilized. However, since these core employees own shares, they can still enhance their sense of belonging and mission, which has a certain retention and improvement value for the talent team that has left frequently.

In the future, if the operator's stock price rises, this part of the equity income will increase, which may bring a better sense of value. Some institutions have calculated that if China Mobile's stock price reaches its historical high of HK$118, then, based on an average of 30,000 shares per person, each person will make a profit of 1.67 million yuan. If China Unicom's stock price only doubles and does not return to its historical high, the holders will also have good returns. China Telecom's equity incentives are at a low point, and the profit space may be greater.

In the 5G era, operators' profitability can be expected to increase, valuation levels can be restored, the value of equity incentives will be highlighted, and through everyone's concerted efforts, a win-win situation for individual, corporate and national interests will be truly achieved.