Qingdao Haier, a home appliance arm of Haier Group, announced yesterday it has mapped out a stock option incentive plan to reward management and gather steam for the enterprise's long-term development.

The State-owned giant is set to grant 80 million share options, amounting to 6.69 percent of the company's existing share capital, to its senior managers and selected staff. Each share is offered at 7.63 yuan (98 US cents), which is the same as the closing price at Shanghai bourse last Friday.

Qingdao Haier stock yesterday saw a 0.57 yuan (7 US cents) increase per share to close at 8.2 yuan (US$1.025), which shows a favourable reflection from the market.

"We are becoming increasingly aware that a good connection of the interests between senior leaders and the company can help bring about the sustainable development of the company," said Ji Dong, secretary of the board of directors of Qingdao Haier, a major domestic producer of refrigerators and air conditioners.

"Qingdao Haier is among dozens of China's early-listed State-owned companies. Its top managers hold an inadequately small number of shares, which inevitably quashes the company's vitality and consequentially lowers investors' confidence in us," he added.

Employees receiving the planned share options are given seven years to exercise the scheme. Those receiving the share options will include the directors of the board, senior managers, chairman-nominated cadre staff and newly developed qualified employees.

Yang Mianmian, chairwoman of the company, will receive 3 million share options, or 0.25 percent of the company's capital.

Within the seven-year incentive plan, the exercise of the share options must consider a number of conditions. For example, the company's annual net profit growth rate must be no lower than 10 percent during the period from 2007 to 2009, and the return rate on net assets must be controlled so that it is no less than 8 percent, according to the company's statement sent to the Shanghai Stock Exchange yesterday.

The total of 80 million share options will be allocated in two branches, with 60 million first going to the top managers and selected staff. The remaining 20 million will be reserved to reward newly recruited qualified staff.

Qingdao Haier's stock option incentive plan closely resembles that which was launched by Baosteel Group one week earlier. Dozens of Shanghai's and Shenzhen's listed companies have announced management incentive plans so far in a bid to attract more investors from the capital market.

"The share option incentive scheme represents a developing trend of China's enterprises, which is now receiving more and more attention," said Sun Lijian, a professor of the Economy College of Fudan University in Shanghai.

"Whether stock prices serve more as the barometer of the company's performance is an important index to judge the maturity of an economy. It is high time for Chinese listed companies to shift concern from focusing on personal income to maximizing shareholders' interests as a whole," he added.

It is also regarded a good way to stabilize companies' capital sources and dodge stock price risks caused by malicious speculation, Sun said.

The company also confirmed in yesterday's statement that a sales company will be set up in southwest China's Chongqing Municipality, with a sales network of 42 outlets to be created throughout the country.

By doing this, Qingdao Haier, will enjoy an independent sales platform, which would reduce the connected transaction with its parent company, Haier Group, and simplify the sales process.

(China Daily December 26, 2006)