Incentives to SOEs' employees a test for reform

CHINA HAS DECIDED TO carry out a pilot employee stock ownership project in some State-owned enterprises this year which will allow eligible employees to buy a certain amount of company stocks, according to a guideline issued by the State-Owned Assets Supervision and Administration Commission of the State Council, the country's top SOE watchdog, on Thursday. Beijing Youth Daily commented on Friday:

By making employees equity holders to make them work harder for the benefit of the company, the initiative is apparently aimed at improving the competitiveness of SOEs. Expected to make a major difference to most SOEs and their employees, the move will lay the ground for personnel management reform.

Some SOE employees do not perform to their potential because of their weak sense of belonging when it comes to their company. On the other side of the spectrum are employees who excel in their jobs because the private companies they work for, such as Shenzhen-based Huawei Technologies Co Ltd and Pingan Group, support employee stock ownership.

Allowing employees to enjoy the dividends of growth, and giving them a stake in the company and a bigger say in high-level operations have proved effective in increasing unity and optimizing management. As a result, a majority of employees of companies like Huawei are loyal and strive to make market gains.

But it is not easy for SOEs to follow in the footsteps of private companies, let alone emulate their success. Some SOEs have made similar attempts over the past two decades only to fail and lose State-owned assets because of unprofessional management.

To avoid repeating these mistakes, the new guideline specifies SOEs' eligibility for the pilot projects, requirements for stake holding and stake transfers with other details. It also says the model would be gradually adopted from the end of 2018 only if the pilot project succeeds.

Taking extra caution in invigorating the SOEs is necessary given the economic downturn. It should not be seen as a move to exclude employees from sharing an enterprise's dividends either, because stock ownership reform is not about promoting privatization.