Restricted means that a certain amount of stock in the company is granted to the incentive subject on predetermined conditions. The incentive subject can only sell the restricted stock and benefit from it if his tenure or performance goals meet the conditions specified in the plan.
General restricted stock mainly refers to the incentive object to get no investment or only a small amount of investment cost of the full value of the stock award;
At this time, investors can enjoy the right to divide the company’s property, and at the same time can also get the company’s dividends;
As for the stock option, it means that the company grants the incentive object the right to buy a certain number of shares of the company at a predetermined price and condition within a certain period in the future. At this time, investors can obtain a certain potential income.
Restricted stock generally has less risk. Usually, even if the market is not very good, as long as the price is greater than 0, investors still don’t have to worry about it. The stock return is still there, but not high.
If it is stock option, when the stock market price is relatively low, investors will be faced with a greater risk, and it is very likely to face a certain loss.
3. Different Number of Stock Awards Restricted stock awards a smaller number of shares than stock options, which can be three times or more the number of restricted stock awards for the same investment cost.
Stock options and restricted stock, is our country listed company after the completion of the implementation of incentive, the two main ways in China issued by the listed company equity incentive measures for the management, state-owned assets supervision and administration commission, the Ministry of Finance issued the state holding listed companies (domestic) trial measures for the implementation of equity incentive, clearly define the two mainstream way of equity incentive.
Stock option is a typical incentive mode with asymmetric rights and obligations, which is determined by the essential properties of the financial instrument option.
The holder of an option has only the right to exercise it, but no obligation to exercise it.
Restricted stock has symmetrical rights and obligations.
After the incentive object obtains the stock under the condition of meeting the grant conditions, the value of the restricted stock increases;
In turn, the stock price goes down and the value of restricted stock goes down.
The rise and fall of the stock price can increase or decrease the benefit of the target.
5. Waiting Period, Lock-up Period and Lock-up Period Different stock options have a waiting period (more than one year) after they are granted and then enter the option period.
It is generally designed for fractional exercise (can be uniform or accelerated exercise).
At present, listed companies in our country have increased setting feasible right condition (such as setting some financial index threshold and so on).
Once the option is exercised to subscribe for the shares, the sale of the shares is no longer restricted, as long as it complies with the relevant provisions of the Company Law and the Securities Law on the sale of shares by senior executives.
Restricted stock is granted with strict conditions (such as net profit, earnings per share and other financial indicators). After receiving the stock, the incentive object has a certain period of lock-up period, and then enters the unlock period (3 years or more). Only after meeting the strict unlock conditions can the limited number of shares be listed and circulated every year.
The exercise price of a stock option is the price at which a listed company grants a stock option to the incentive object and the incentive object purchases the shares of the listed company.
The exercise price has a clear stipulation that it shall not be lower than the following price: the underlying shares of the company on the trading day prior to the publication of the draft summary of the equity incentive plan;
The average closing price of a company’s underlying stock during the 30 trading days prior to the publication of the draft equity incentive plan summary.
The author thinks that the grant price should be the real purchase price of the incentive object considering the economic meaning of grant price.
Since the real purchase price of the incentive object is different from the stock market price when the draft plan was announced, and there is generally a discount with the market price, and the real purchase cost of different plans of different companies is very different, so the relevant documents of China Securities Regulatory Commission do not specify the grant price of restricted shares.
The valuation of different stock options is generally calculated according to the option pricing model in financial engineering (such as B-S model or binary tree pricing model), which depends on the stock market price, strike price, volatility, option validity period, risk-free interest rate, rate and other parameters.
However, there are various practical differences between the management incentive stock option and the option as an ordinary financial instrument (for example, incentive stock option has no circulation market, there is a waiting period, etc.). The option value calculated by either B-S or binary tree pricing model cannot meet the real value of incentive option.
However, the valuation of restricted stock is very simple. The value of restricted stock is the market value of the stock on the grant date minus the grant price, and there is no future waiting value.
The difference between the two can be understood as restricted stock has only intrinsic value, while stock options have intrinsic value and time value.
8. Differences in Accounting According to the Accounting Standards for Business Enterprises No. 11 – Stock Payment, stock options and restricted stock are equity settled stock payment and shall be measured at the fair value of the equity instruments granted to employees.
On the grant date, the fair value (i.e., the appraised value) is determined for stock options and restricted stock.
For stock options, the number of options with feasible rights is estimated on each balance sheet date during the waiting period, and the fair value determined on the grant date is included in the current period’s costs and capital reserves.
For restricted stock, there is generally no waiting period and the incentive subject is allowed to hold the stock after it grants.
If the incentive fund is adopted, the incentive fund will be included in the next period of costs and expenses and bank deposits will be deducted.
If private offering is adopted, the company and bank deposits will be increased, and there will be no cost for the enterprise.
Different stock options are mainly reflected in the annual increase of labor costs and capital reserves during the waiting period of the plan.
Therefore, the option cost will reduce the profit of the enterprise, but does not affect the cash flow of the enterprise.
Due to the high valuation of options (including intrinsic value and time value) and large scale (up to 10% of the company’s share capital), the negative impact on the company’s profits may be relatively large (for example, in the 2007 annual report of And, the excessive option cost caused the net profit to turn into a loss, which became a sensational event).