Chinese Mandarin - Finance: Time not right for stock options

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BIZCHINA / Biz Media Digest

Finance: Time not right for stock options

(China Daily)
Updated: 2007-09-03 09:49

The time is not right for State-owned banks to implement executive stock
options, says a signed article in China Youth Daily. The following is an
excerpt:

The People's Bank of China, the central bank, announced last Monday it
would further the reform of State-owned commercial banks by offering
executives stock options.

Executive stock options is an effective incentive, it binds the
managerial with the future of the business. Because of their personal
interest, people improve their management and efficiency to achieve
sustained development of the business.

However, the time is not right to introduce this incentive system to the
State-owned commercial banks.

Stock options should only be allowed for companies where there are
clear-cut lines defining power, responsibility and rewards. Without such
guidelines, the incentive system will not work as they are intended.

Our State-owned banks are far from being qualified. The managers in the
State-owned banks are usually appointed by the administrative and they
are members of the administrative hierarchy. Moreover, they are often
moved to other State-owned banks before their terms are over. This makes
the executive stock option plan unfeasible.

As monopoly players in China's financial sector, the State-owned banks
enjoy interest on loans and that paid on deposits higher than most banks
in the world. So the banks achieve remarkable profits without worrying
about their management or service quality. In other words, the banks'
profitability is unlikely to change along with its management.

(For more biz stories, please visit Industry Updates)

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