Reward And Incentive - The Taiwanese Way

Reward And Incentive ” The Taiwanese Way

Taiwan fixed wage is generally 40% lower than those of Singapore and 60% lower than those of Hong Kong. However, depending on the exchange rate between Singapore dollar and New Taiwan Dollar, the cost of living in Taipei and Hsinchu can be higher than that of Singapore. Until very recently, stock options were not allowed in Taiwan. Therefore, employers had to offer something more to motivate the employees , as explained through the stock shares program detailed below.

Case Study: How Company Stock Options Work

A stock option gives its owner the right to buy stock at a specified exercise or striking price on or after a specified exercise date. It is common for American companies to give incentives to their top executives to raise the share prices of the companies by offering them stock options.

By offering stock options, it is hoped to align the goal of the executives to that of the shareholders: to increase shareholders' value. To illustrate how it works, look at the following example:

The share price of Company A is $10 per share on December 31, Year X. An executive of Company A is awarded on that day stock options to buy 10,000 shares of Company A at $12 per share on December 31, Year (X + 2). If on December 31, Year (X + 2), the share price of Company A is $20, the stock options will bring $80,000 (10,000 shares x ($20 “ $12)) profits to the executive. However, if the share price of Company A is equal to or below $12, the stock options will be worth nothing to the executive. Therefore, it is in the executive's interest to increase the share price of Company A (as opposed to buying corporate jets or building new luxury offices) as much as possible.

Taiwanese employers keep their employees motivated by offering them company shares. Many companies set aside 15% to 20% of the shares for the employees (this excludes the percentage of shares owned by directors).

If a company is doing well in one particular year, instead of paying cash bonuses, the company might issue free bonus shares to the employees and its shareholders. The par value of these new shares is always NT$10 each. If the company decides to issue 10 million shares, it will transfer NT$100 million (NT$10 par value per share x 10 million new shares) from the retained earnings account of the balance sheet to the paid-up capital account. By doing so, the company will be able to keep the precious cash within the company and yet keep the employees and shareholders happy. This scheme is extremely successful. At the peak of the capital market, it is not unusual for employees of successful companies such as UMC and TSMC to receive shares equivalent to two to four times their annual wages .

This bonus share scheme has an important by-product ” a vibrant capital market with the second-highest liquidity in the world.