Hong Kong's passion for Employee Equity

In an exclusive interview with Asia Business Outlook, Jennifer Sun elucidates how Hong Kong-listed companies are offering equity as remuneration to their employees and how the companies are attracting top talent through this compensation plan. She is Head of Plan Managers Asia at Computershare and is based in Hong Kong. She has more than 17 years of experience in equity compensation across Asia Pacific, including helping to establish the Computershare Plans business in Asia.

Each year Computershare reviews the popularity of equity plans in Asia, and our research shows that 83.6% of Hong Kong-listed companies now include an employee share plan in their remuneration strategy (as of 2022). That’s more than four in five public companies listed in Hong Kong now offering their employees an equity plan. This is a significant rise of 17.5% (from 66.1%) of companies that offered a share plan just over a decade earlier. Thanks to a highly competitive regional jobs market, Asian companies increasingly appreciate how employee share plans can help attract, retain and motivate skilled and specialized professionals.

Hong Kong-listed businesses invested a total of HK$72 billion in employee share plans during 2022. We have also seen Hong Kong-listed companies become more aware of the ways share plans can positively affect employee attitudes and behavior.

Research in recent years funded by Computershare, prepared by the University of Hong Kong, and conducted by the University of Warwick has shown that employees’ sense of ownership towards their organization grows as the proportion of the wealth they hold in employer shares grows. As employees’ share of wealth increases, their goals and objectives, therefore, align increasingly with those of the business. Employees are also less likely to quit as their percentage of total wealth held in employer shares grows.

It’s also worth noting that employee share plans grew in popularity in Hong Kong despite market volatility during the global pandemic. This seems to indicate that many companies understand that they need to continue to invest in employee share plans to reap the long-term organisational benefits of such schemes.

Share options versus share awards

Hong Kong-listed companies are most likely to offer two types of plans: share options and share awards. Share options involve employees having the choice to purchase shares in the future at a predetermined price on a specific date. These are used by companies of all sizes to align executive awards with the company’s financial performance – because as the share price increases, so do the rewards for employees.

By contrast, share awards typically mean employees receive company shares for free. Employee Share Purchase Plans (ESPPs) are also growing in popularity among Hong Kong’s public companies. ESPPs involve employees buying shares through payroll deductions, either at a discount from the market rate or with a company match.

How companies of different sizes approach their share plans

Public companies of all sizes have contributed to the growth in employee share plans in Hong Kong. However, our research reveals that smaller and larger companies can take a different approach. For example, our research shows 38.8% of companies with more than 100,000 employees offer share options, while 40.4% offer share awards.

Share options are typically more popular than share awards across all industries, but smaller companies are more likely than others to offer share options to attract the talent they need to grow and reach their business goals. Our research shows that most small companies with up to 100 employees offer share options (88.5%), while just one in 10 offer share awards.

Companies with a medium-to-large employee base typically offer a more diverse range of share plans, which allows them to adjust their plans for specific employee groups and better align those plans with strategic business objectives.

"By offering more than one plan type, a company has more flexibility with its offering should its strategic objectives or market conditions change."

The ways different sectors invest

Of the HK$72 billion that Hong Kong-listed companies spent on employee share plans during 2022, the IT sector accounted for more than half (53.5%) or HK$38.5 billion. Healthcare companies are the second largest investor in employee share plans at HK$11.5 billion, followed by the consumer discretionary sector, which is made up of companies that offer non-essential goods and services, which invested HK$9.7 billion. Although the IT sector has made the greatest investment overall, individual healthcare companies are more likely to invest a significant amount in their share plans than individual IT companies, according to our research.

More than a third of healthcare companies (37.7%) invested between $50m and $100m in their share plans in 2022 compared to 25.8% of IT companies and 25% of financial companies. IT and financial companies were more likely to spend more modest amounts (between $0 and $5m) on share plans annually, with 42.7% of IT companies and 50% of financial companies investing within this range in the year compared to 26.4% of healthcare companies.

What’s next?

Looking at current data, we expect many Hong Kong-listed companies will continue using employee share plans to help achieve their strategic goals, which will be shaped by their size and industry. Companies in the region considering establishing employee share plans may also choose to use the available research to benchmark their spending against their industry peers.