Introduction:

In recent years, with the strong support of national policies and the high attention of the capital market, the number of semiconductor enterprises has increased rapidly, there is a major supply gap for industry talents, and the risk of shortage or loss of technical talents has become the "sword of Damocles" hanging over semiconductor enterprises. Attracting and retaining high-quality talents has become the foundation of semiconductor enterprises in talent and technology intensive industries. In this context, more and more semiconductor enterprises are aware of the positive significance and necessity of setting up equity incentive plans in addition to the regular employee compensation, bonuses and company benefits. According to our observation, in the past two years, most A-share listed semiconductor enterprises have indicated in their prospectuses that there is a risk of shortage and loss of technical talents in their industries, and have disclosed the equity incentive plan as an important system of the company. It can be seen that in market practice, equity incentive plan has become an important means for semiconductor enterprises to compete for and retain talents.

Due to space limitations, this macro chapter will introduce the common categories of equity incentive in semiconductor enterprises, and focus on the elements and processes that should be considered when formulating and implementing equity incentive plans. We will launch the "micro chapter" in the subsequent articles to further discuss the common texts, terms and precautions of equity incentive plans, and the "tax chapter" to discuss the tax related issues of equity incentive.

1、 What is equity incentive?

In fact, equity incentive is not an incentive method that literally only takes the company's equity as the only tool, but a general designation of the long-term incentive mechanism linked with equity implemented by enterprises to encourage and retain core talents. For non listed companies, the common modes of equity incentive include granting equity, options, restricted equity, virtual equity and equity appreciation rights to the incentive object company. Of which:

(1) Equity refers to the issuance of company equity to incentive objects that meet the incentive conditions through capital increase of the company or equity transfer of Founder shareholders, so that they can become shareholders of the company directly or indirectly through the shareholding platform.

(2) Option refers to the right to purchase a certain amount of company equity at the agreed price within a certain period of time in the future to the incentive object who meets the incentive conditions. Since the exercise price is generally low, the incentive object can obtain potential income through exercise (the difference between the exercise price and the market price). After the option is granted, there is a waiting period of at least a period of time (i.e. the exercise period) and the incentive object can exercise and hold the company's equity only after passing the examination. The option holder has the right to exercise, but has no obligation to exercise.

(3) Restricted equity has more restrictive conditions than the equity described in (1) above, that is, before the agreed conditions are met, the incentive objects hold only unlocked incentive equity, and generally, the incentive objects cannot transfer or dispose of incentive equity before unlocking; If the agreed conditions are not met, the company has the right to repurchase such restricted equity. Unlike equity options, once the incentive object accepts this incentive method, it must purchase equity at that time, so it needs to bear the risk of equity depreciation caused by decision-making errors.

(4) Virtual equity refers to the company quantifying its equity into standardized equity, and using part of it for equity incentive plan. By selling "virtual" equity to incentive objects, incentive objects can enjoy incentives through equity premium and dividends. In essence, incentive objects receive cash rewards, similar to bonuses linked to the price of the company's equity and profits. When the incentive object leaves the company, the income rights corresponding to the virtual equity will automatically expire.

(5) Equity appreciation right is similar to virtual equity. The company quantifies the company's equity into standardized equity and uses part of it for equity incentive plan. Like the virtual equity, the incentive object cannot obtain the ownership or voting rights of the company's equity, but unlike the virtual equity, the incentive object with the equity appreciation right has no right to enjoy the dividend income of the incentive equity. Under the equity appreciation right tool, the incentive object can only enjoy the income from the rise in equity price caused by the rise in the company's performance, and obtain the income equivalent cash caused by the rise in equity value in the agreed proportion.