How Employees in China Would Benefit from an Overseas ESOP

By Hao Wang

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The employee stock ownership plan [ESOP] is a widely-accepted practice for giving incentives to employees. With more Chinese companies listed or to be listed on overseas stock markets, their employees in China would expect to enjoy the benefits of a well-designed ESOP. Since the holding company that is actually listed in the overseas stock market is incorporated under the laws of a country other than the PRC due to current legal obstacles in China, the ESOP adopted in such a situation is a plan governed by foreign laws. A foreign company listed on an overseas stock market may also have this concern if it wishes to award its employees in its subsidiaries in China through the ESOP applied in its headquarters. In light of foreign exchange controls and the taxation system in China, certain legal issues need to be resolved before employees in China could benefit from such an ESOP.