Acer Group Founder Stan Shih
An Irresistible Trend throughout Industry
A Taiwanese high tech pioneer discusses the new rules requiring companies to declare employee stock bonuses as an operating expense, and the challenges this presents for industry.
An Irresistible Trend throughout IndustryBy Jimmy Hsiung
From CommonWealth Magazine (vol. 378 )
Q: How do you view this issue of altering the accounting of employee stock bonuses as an operating expense?
A: In the past, due to high growth in the high technology industry, profits weren’t bad. Now, however, after things have settled down, shareholders feel the returns on their investments in high-technology companies have become more unbalanced. There must be balance for there to be sustainability. So, it’s not only Taiwanese companies that are making this adjustment, but the whole world.
This actually started in the United States. Shareholders certainly invested a great deal and reaped large returns during high tech’s period of development, so giving employees a little more wasn’t a problem.
But now, at a time when returns are falling short, of course they can’t receive as much as before. So, carrying out a balancing action now is a very equitable thing to do.
Q: So, based on your observation of how companies have responded to shareholders by rebudgeting employee stock bonuses as salary, is there a particular method or distribution ratio that is more equitable at the moment?
A: Rebudgeting in the end is essentially equivalent to cash. It’s not about stock. Stock is converted to market value, which is the same as using cash to buy it. Therefore, we basically think of this issue in terms of cash.
When thinking in terms of cash, what percentage do you want to allot for salaries? Or for bonuses?
Because bonuses are also a type of profit sharing. It’s just that the source is different. One type is a bonus given based on everyday performance. One type is a bonus given according to a ratio after a certain amount of money is earned. Both need to be reconsidered.
I believe raising salaries too high is not correct. They should be raised appropriately. Because your original salary levels are already like that, so once you raise salaries across the board, what does that mean? It means you have raised your costs. And once you’ve inflated costs, will you be able to compete with others internationally?
The reason Taiwan’s high-tech industry is competitive is because our engineers can be considered among the most inexpensive in the entire world, plus the things they make are first rate. So, when we make money, everybody shares it. In the end, the money that Taiwanese engineers make is actually not less than in the United States.
Q: Once the new rules redefining employee stock bonuses as an operating expense kick off next year, will that mean Taiwan’s high-technology salaries are moving in the direction of normalization?
A: I don’t believe that’s the way it is. It was normalized before. You can’t say the previous system was not normal just because things have developed over time and the environment has changed.
The old system certainly needs adjustment. But it was normal before. It was the most distinctive and most creative system that Taiwan ever had in the world. Moreover, it was stipulated by law. It wasn’t just allowed by law, it was stipulated by law.
Throughout the whole world, only Taiwan’s company charters mandate profit-sharing. It’s stipulated explicitly in writing within company charters. Furthermore, they require that when a company wants to increases its capitalization, the price must be the same. That is, when surplus profits are converted to capital, ten dollars is used for the shareholders, and ten dollars is used for the employees as well.
So this system is completely normalized and extremely systematic. What we have now is the outcome of making good use of this system after the government implemented the regulations. However, following the changes that have occurred over time and within the objective environment, this outcome has naturally created a phenomenon of imbalance. Therefore, only now has it needed to be adjusted.
Q: You just mentioned that businesses should not raise their basic salaries too high because industry economic climates run in cycles. Is that the way it is?
A: That’s correct. Besides industrial economic cycles, there is also the issue of international competitiveness.
Because, I often say to a lot of people, “Do you want to take a lot of money now, and then in the end have the company operate just passingly, or even lose money and fail? Or would you rather take a little less now so as to allow the company to keep costs low, to be competitive and able to make money, and then when the time comes to share profits, what you take home is no less than the other way? Which method would you prefer?”
This second method is competitive, provides a sense of accomplishment and brings you face. Otherwise, you spend all of your time at it and never make any money. You’ve used up all of your money yourself. Of course you will have no face.
Q: There are some investment organizations that have predicted that perhaps some companies might raise salaries by seven to fifteen percent next year. What do you think?
A: That depends on the industry. Right now, salaries are a free market, a question of supply and demand. An appropriate degree of adjustment is a good thing, but if it gets out of control, it will essentially create a state of instability, throwing supply and demand out of balance.
Then, salaries all get raised to where they exceed the ability of the industry and that undermines the industry’s competitiveness internationally. Ultimately, the entire industry would end up at a relative disadvantage. Add to this that companies usually raise salaries in order to attract talent from other companies.
So, speaking in general about running our business, we hoped our salaries were competitive from the beginning of the very first day. Yet we would absolutely not offer salaries as a means of, or a tool for, winning over talent, because in reality the risk would be considerably large if we were to do it that way.
Q: You also just mentioned that salaries are in fact not necessarily the only consideration for a job. Could you provide workers everywhere with some suggestions concerning the type of attitude they should maintain towards work in the future?
A: I don’t have any suggestions in particular. Since this is an irresistible trend throughout industry, both companies and employees must confront a transformation like this. They can’t continue to maintain the same attitude toward work as in the past.
It is to take the pursuit of a new equability and stability as a commongoal. There ought to be only one consideration: anytime there is something that concerns one’s personal advantage, one should consider as well whether it corresponds to the greatest advantage for the company. Although the ultimate consideration regarding the rebudgeting of employee stock bonuses as salary raises is achieving a balance between the employees and the shareholders, of even deeper impact is that the employees and the company exist in a relationship as a living organism.
Translated from the Chinese by Stan Blewett
Chinese Version: 施振榮：這是產業的大勢所趨