A Study of Employee Profit Sharing and Stock Ownership Plans in Taiwan
Ma, Yu-Feng, Goo, Yeong-Jia, International Journal of Management
High-tech industry is one of the most important pans of the Taiwanese economy, and its development is closely related to the future of the country. In this paper we analyze employee profit-sharing and ownership plans (EPSSOP) in the industry, plans that are still being criticized and questioned twenty years after their first implementation.
The employee profit sharing and stock ownership plan (EPSSOP) in Taiwan is in accordance with Article 235, 240 of the Company Law. If a corporation has surplus profit and shares its surplus profit with its employees, the distributable percentage of surplus profit as employee bonuses shall be definitely specified in the articles of incorporation. The EPSSOP involves actually distributing the bonuses to employees in the form of common stock shares. The purpose of the legislation is to reward employees, enhance their loyalty and achieve the goal of "evenly distribution of wealth" as defined in the Principle of Livelihood.1
Commonly used by the high-tech industry in Taiwan, the plan has attracted the attention of many industry leaders. The importance of the plan is obvious, as indicated by Robert Tsao, chairman of United Microelectronics Corp. (UMC), who credited the plan with being one of three major factors behind the competitiveness of Taiwan's IC industry.2 However, owing to differences in accounting treatment and procedures between Taiwan and the United States, most investors have suspicions regarding the fairness of financial statements prepared by the Taiwanese GAAP.3
Though the EPSSOP has its place in the development of the high-tech industry,4 there still exist some discrepancies, such as slightly high percentage of employee bonus, the dilution effect and the fluctuation of share price. Should the plan be abolished or amended? If it should be amended, how can that be done? All these matters could affect the competitiveness of Taiwan's IC industry or even the development of the capital market, so the topic is worthy of thorough discussion.
This paper will compare the EPSSOP in Taiwan with that in the United States, analyze the disputes derived from the local plan, bring up possible solutions to the dispute and make conclusions.
2. Taiwan's Profit Sharing and Stock Ownership Plan
The EPSSOP is a reward mechanism that combines profit sharing and ownership plans. Its definition can be discussed in three parts as follows.
(1) PROFIT SHARING
Profit sharing, or bonus sharing, is a payment distributed to the employees based on the fixed percentage of the surplus profit. That is, profit sharing is a payment beyond salary and a part of the surplus profit.
(2) STOCK OWNERSHIP
The stock ownership is designed to grant the employees shares issued by the company, so that the employees can become shareholders. Generally, there are five types of stock ownership stipulated in the Company Law.
A. Qualification requirements of employees, including the employees of subsidiaries of the company meeting certain specific requirements, entitled to receive dividend bonus may be specified in the articles of incorporation....Where the distributable bonus is to be capitalized in accordance with the preceding three Paragraphs, the bonus distributable to the employees under the articles of incorporation may be paid either in the form of shares newly issued for such purpose or in cash. (Articles 235 and 240 of the Company Law)
B. The shares bought back by the issuing company under the preceding Paragraph shall be assigned or transferred to its employees within three years. (Article 167-1 of the Company Law)
C. The share subscription warrant obtained by any employee of the issuing company shall be non-assignment, except to the heir(s) of the said employee. (Article 167-2 of the Company Law)
D. Equity capital to be contributed other than cash by shareholders may be in the form of monetary credit extended to the company, or the technical know-how or goodwill required by the company provided. …