One of the big problems I had with iTunes Connect is that they charge me a wire fee every time I got an international transfer. This meant charges of $13 every month, times four or five for each international zone that hit the minimum.
Friday, December 25, 2009
Sunday, December 20, 2009
Monday, December 7, 2009
I posted a couple weeks ago about over-the-top app store analytics players for iTunes Connect. After careful consideration of all the options, I picked AppViz.
Saturday, November 21, 2009
Last Mobile Monday that I MCed:
Sunday, November 15, 2009
Thursday, November 5, 2009
I've been trying to get more visibility into our apps business. iTunes reporting is pretty lean in terms of cutting the data into information that would actually help you run you business and price your apps.
Tuesday, November 3, 2009
How big of a turkey do I need for the 14 people (12 adults, 2 children) I'm cooking for for Thanksgiving?
Butterball has the answer. It's 19 pounds.
Saturday, October 24, 2009
Tuesday, October 13, 2009
I just got a G1 today and I kind of wish I hadn't. I'd used various units for testing but never searched Android Market for my apps until I got my own phone today.
I have an app called PMConcepts - PMP Prep on the Android store.
Yet when you type in PMConcepts or PMP, Android Market says there are zero matches. I think I am going to pull my hair out. This platform has so much potential for developers, help us unlock it!
Saturday, October 10, 2009
Looks like this Android's strategy to support multiple screensizes on different OEM phones....
We're writing to inform you about a couple changes to Android Market that
require your attention.
First, we have added the ability to target applications by carrier in all
countries. For example, if you are showing your app in the United States,
you can now choose among Sprint, T-Mobile, and Verizon Wireless. If your
apps are intended for users of specific carriers, please go to the Android
Market developer website at http://market.android.com/publish (in the
Publishing Options section under Locations) and target your applications
to those carriers accordingly.
Second, Android Market will soon be available on devices with different
screen sizes. Until now, Android devices have only had "normal"-sized
screens, e.g., HVGA (320x480). The latest platform release, Android 1.6,
expands support for upcoming devices that cover three different screen
sizes: small, normal, and large. Please note that Android Market will
allow apps built with the Android 1.5 SDK (or lower) to show only on
normal- and large-screened devices. Android Market will allow apps built
with the Android 1.6 SDK to show on all three screen sizes. Therefore,
you will need to upgrade your app to Android 1.6 if you want it to also
show on small screen devices that will launch in the coming weeks. For
complete details on Android's support for different screen sizes and the
implications for your apps, we strongly recommend that you read the
Android Developers Blogpost at
Thanks, and we look forward to continue working with you on Android
The Android Market Team
Thursday, October 8, 2009
This was the video Nicole Prowell did for the Moca's entry in the finals of the Lien i3 Challenge. I think it does a great job explaining why our solution to the rural tele-health problem is both compelling and important. We're waiting to hear whether we won or not. You'll notice I'm not in any of the shots. That's because I took most of the video. Let's just say Nicole is an amazing editor.
Monday, September 21, 2009
Sunday, September 20, 2009
While I was in Manila, I bought a water bottle at Robinson's Department Store. I bought it because I liked the color, but later in the day, I actually read the inspirational slogans written on it. Unfortunately, it was really crappy and partially melted in the dishwasher. Before I toss it, I decided to type up the advice for posterity sake.
Wednesday, September 16, 2009
Google/Android announced today that there will be some major improvements to the Android Market app store. Thank god. I recently posted about some desired improvement to help us sell our value-added paid educational apps.
Monday, September 7, 2009
Thursday, August 27, 2009
Wednesday, August 26, 2009
Friday, August 21, 2009
Wednesday, August 19, 2009
Gripes with Google's Android Market:
Ugh, hopefully this will improve soon. Otherwise, it's hard to articulate that this is a clearly differentiated product.
Wednesday, August 12, 2009
I am really happy with these guys. I have worked with a lot of offshore developers, and I have been impressed by their attention to detail in the requirements gathering, design and testing phases.
Our first product, PMConcepts, a project management education app for the iPhone is selling well. Next up is ChemGuru for the iPhone, which is a Chemistry SAT II application. That one awaits approval.
Here I am meeting with An Mai, President of IMT. I am happy to put anyone who is doing mobile development in touch with these guys as I am sure they would do a good job for you. Shoot me an e-mail through my LinkedIn profile.
Tuesday, August 11, 2009
Wednesday, August 5, 2009
My college advisor Ken Gergen from Swarthmore's psychology department, talks in this USA today article about the "absent presence" (feeling connected with people through Twitter and the present absence (thumbing away on your iPhone at dinner).
Tuesday, August 4, 2009
Thursday, July 30, 2009
- Gives entrepreneur more leverage and access to capital in event of another round needing to be raised (for example, a bridge round can now easily be shopped to different members of the syndicate) and more stakeholders whose interests lie in the continuation of the company.
- It is much easier to do another series (in this case it would be C or a bridge) with an investor that is already involved. The due diligence is less as the investor is already familiar with the inner workings of the company.
- Multiple good VC brands behind your company helps affirm your positioning in the eyes of the customer
- Each of the different VCs can open doors to customer acquisition
- Multiple resources such as people, advice, counsel and guidance
- For VCs, shares risks and allows spreading money over more companies; For entrepreneur may diversify future funding streams if another round needs to be raised
- Multiple resources as advice, counsel and guidance can mean too many voices in management’s ear
- Different members of the syndicate may want control or seats on the board, which may be difficult for the CEO to manage. We saw this in one of the VC vignettes where VCs each wanted to be on the board and the value they added varied. Yet it is hard for the entrepreneur to handle such delicate matters as they do not want to offend major investors.
- If they both have enough cash, you might want to see them compete for the deal rather than collaborate and pin you down on a valuation.
- In down times, the different VCs influence one another – A recent speaker at Sloan talked about a situation where a syndicate of VCs had to decide whether or not add money to a company that had run out of cash. One VC refused, and the others fell into line even though they had been positive before.
Tuesday, July 21, 2009
Here are two quotes from my trip to the Batanes, and why I believe making access to specialist care in rural areas should be a priority:
“Last year, my father had chest pains and needed to see a specialist in Manila. We sold our cows and our land so he could go. I had to take leave from my job to accompany him. It turned out to be pneumonia, which could have been diagnosed here.”
– Basco, Batanes
“Our daughter was born with congenital hernia. Surgery was required, but the doctor was able to do the pre-op session use tele-health. This saved us an additional trip to Manila or a much longer stay. Our daughter is doing very well now!”
Sunday, July 19, 2009
The Batanes, the northernmost district of the Philippines has a very interesting form of social health care insurance. It is run by the provincial health organization as a supplemental scheme to the national PhilHealth insurance. Not everyone is mandated to pay as it is an opt-in scheme. Approximately 1,000 out of 3,000 households is enrolled. 92 pesos covers your whole household, including all people who live with you, even if they are say nieces or uncles. PhilHealth only covers the direct relatives.
That was the price they decided on after a survey found that it would cost 50 pesos a month. Once paid in, the insurance covers up to 5,000 pesos for hospitalization for the whole family. It covers 500 for in-patient care.
Interestingly, the insurance is largely sold by the Barangay Health Workers (a barangay is a small unit of government, think perhaps a village of a few hundred people.) There are 129 health workers (not bad in a population of 16,000).
PhilHealth is automatic for those who are formally employed in tax-paying companies and the government, and costs 100 pesos per month. In the informal sector it is opt-in, though in many cases it has been extended by the government as a care-for-indigent people package.
In the Philippines, since PhilHealth is often insufficient, health care for those cannot pay is also covered out of the budgets of the Congressman, the governor and the municipalities.
Thursday, July 9, 2009
I met Charlie Baker, currently CEO of Harvard Pilgrim, and now gubernatorial candidate in Massachusetts last year. Baker came to speak in Ernest Berndt’s Economics of Health Care class when I was at the MIT Sloan School of Management. I came away extremely impressed.
Baker is articulate, intelligent, confident and fully looks the part of governor. He has an assertiveness to him that Deval Patrick has sorry lacked in the governor’s office. I was extremely impressed by his understanding of the health care industry, operational insight and financial savvy. He’s done well running a profitable business in a union controlled industry. It seems that he’s done a good job working with them to ensure they are creating value.
I can’t say for sure how these will translate on the campaign trail. Baker has experience in government, but also understands the needs of private businesses. More importantly, he knows how to run them, and that might be just what we need in these tough times.
I’m a registered Democrat, but I would consider voting for Charlie Baker in a general election. I was a very big Mitt Romney fan for his fiscal discipline and the way he provided a balanced and competent voice (a voice of reason is needed in sometimes in what is essentially a one-party state. I’m really a Massachusetts moderate, but national Democrat. But I think Massachusetts may need something different.
Right now I’m rather down on Deval Patrick after supporting him strongly a few years ago. Even when he spoke at MIT’s graduation, he seemed very out of touch with the needs of the common people. He told one story about his daughter doing a school project about the four seasons about the Four Seasons Hotel. In another case, he talked about “looking down upon a sea of people” at Barack Obama’s inauguration. A few of his actions (pay raises for cronies, re-decorating his office) combined with some of the things Patrick says just give me an intuition that he doesn't really get "it", as smart a guy as he is..
There has been almost no business innovation in solving many our state’s business problems. For instance, the MBTA. When I walk into Government Center, I see a Dunkin’ Donuts and a lousy hot dog stand that sells fake Louis Vuitton bags. In Hong Kong, if you wanted to, you would never have to leave the subway station. Their stations are full of value-adding business paying rent. These people watch the station like hawks to make sure it is safe, increasing security without paying for security guards. Sell advertising on the Mass Pike.
How did Baker do running Harvard Pilgrim? When he took the company over in 1998, it was coming off a year where it lost $94 million. Since then, Harvard Pilgrim has had turned into a profitable coming with one of the highest customer satisfaction rates in the country (it's one the US News and World Report award for this 4 years running).
So count me in as someone who will strongly consider Charlie Baker’s candidacy for governor of Massachusetts. Time will tell how he does on the campaign trail and whether like Bill Weld and Mitt Romney, he can get moderates to break ranks. If it's innovation, business savvy and job creation that end up being the key points of debate as I suspect, I believe Baker will do very well.
Sunday, July 5, 2009
Verizon is going with Alcatel-Lucent to build their LTE/4G network. Also interesting in there is that they are setting up an LTE Innovation Center in Waltham. For the MIT readers of this blog, there could be some interesting things going on there...I'll try to dig more when I'm back in the US as I have some connections at both companies.
It took almost two weeks for approval of PMConcepts by the app store, which surprised me, since project management training doesn't exactly seem controversial. I'm working on an application spec sheet for the PMP/Project Management training app here. It's been a fun project - I like my developers in Vietnam (going to visit them in a couple weeks in Ho Chi Minh City), and the writers I hired from various sources.
I'm working a few more projects in this space (risk management, business continuity, interview training, sciences), with the goal of making some of the content eventually available on phones in the developing world to help managers their improve their skills. We'll see how it goes.
Here's the message we all wait for:
Dear Double Bottom Line Partners,
The status for the following application has changed to Ready for Sale.
Application Name: PMConcepts - PMP Prep
Application Version Number: 1.0
Application SKU: 200901
Application Apple ID:320539376 PMConcepts - PMP Prep
To make changes to this application or any of its metadata, log in to iTunes Connect and click the Manage Your Applications module.
If you have any questions regarding your application, click Contact Us.
The iTunes Store Team
Friday, July 3, 2009
One thing I've noticed about the developing world is that the public doesn't price discriminate enough.
In the Batanes, the airport terminal fee was 20 pesos (about 40 cents) and the environmental preservation fee was 15 pesos (or about 30 cents). Those were the only tourism fees collected by the Batanes, which is a miraculous landscape that absolutely deserve to be preserved.
I had been diving with with Chico Domingo, who is not only the dive instructor, but also the primary tour guide on the island and the director of environmental affairs on the island.
I suggested he price discriminate and raise the fee for non-island residents to at least 200 pesos ($4). That still seems small, given the trash and other environmental harm brought by any tourist (even a responsible eco-tourist). Developing world marine and wildlife sanctuaries are justified in maximizing their revenue to preserve these important habitats.
Thursday, June 25, 2009
I’ve arrived here in Manila, where I’m at the Philippines National Tele-Health Center (NTHC). Just getting settled in here, but today I sat in on a meeting where doctors used Skype to prosthetics follow-up. It was a local doctor and a prosthetics specialist here in Manila.
I’m wondering whether Skype could be enhanced to be more of a tool for global tele-health. It certainly has most of the telecommunications framework already present. It’s a nice tool for communication with some (though not ideal) image capability between areas that are wired. It won’t help us in our project in The Batanes, which is truly rural and has no Internet capability.
I basically watched a nurse get taken through an entire procedure. Telehealth might be one of the best ways for Skype to really make a dent into value added corporate services.
I’ll be taking a lot of notes on this trip and posting them intermittently. It rained in Boston for about 15 straight days before I left. Now I’ve arrived in Manila and it’s actually pouring due to a typhoon (!). On Saturday, I head to the Batanes, which is notorious for having terrible whether. Actually, it is a big part why it has remained so rural there. Nevertheless, I’m looking forward to a truly unique cultural experience, and getting to know the distinct Ivatan culture there.
Friday, June 19, 2009
MIT Sloan School of Management
Wednesday, June 17, 2009
I thought I would post this, since it took me a bit of time to figure it out.
Saturday, June 13, 2009
Good article by my Sloan classmate Saad Faazil on pricing a mobile app, something we're keenly focused on as I get ready to launch Upward Mobility.
Thursday, June 11, 2009
If you read this article about Iran's upcoming election, I'm amazed by how similar the situation is there to the United States circa 2007. There is a heavy urban/rural divide, with hardliners on the right heavily influenced by tradition and religion. Regardless of who wins, let's hope that the youth call for more moderate policy is heard, and that no one decides to take a close victory as a "mandate".
Tuesday, June 9, 2009
- Programmers can still make money customizing software for customized functions and support services
- Potentially lower barriers to entry for all businesses; lower costs for entrepreneurship worldwide
- Could potentially lead to the production of more and better software based on existing software
- Could help the developing world who cannot afford to pay
- Quality of software is often low due to “black box” approach; opening code would allow for improvements
- Creates virtual monopolies or oligopolies that limit benefits to consumers (e.g. Windows)
- Enforcement is a violation of principles of freedom (the Libertarian argument)
- Free software promotes unprecedented levels of worldwide collaboration, why stop it
- Profits incent innovation; no investment in software means a slower rate of technology improvement
- Software would be developed internally to meet business needs; this would be ineffecient
- Quality cannot be guaranteed, especially for the non-technical consumer; is it really free if you need to buy support services to get it to work?
- Software can be donated or provided at a discount for those who need it
I was sent this editorial by James Howard Kunstler and had a few thoughts on it.
You know the old saying about making assumptions...
Tuesday, June 2, 2009
Alan Hassenfeld, the former CEO of Hasbro came into speak to our CEO Perspectives in Managing Adversity class earlier this semester. I thought I would share some of the key points he made. Hassenfeld's talk was actually about a crisis brought on by another company. Mattel, Hasbro's main competitor and the number one player in the toy space had caused a number of recalls associated with contaminated paint.
You have no right to ask someone to do something that you would do yourself: This includes sending people to far flung locations, or unethical issues.
Don’t do business with anyone you wouldn’t break bread with: At the end of the day, business relationships are complex, and will have their ups and downs. Hasbro had 25 to 30 year relationships with some of their manufacturers in China. Alan saw this as a critical part of Hasbro’s ability to understand and manage the risks.
Sometimes it’s better to be under the radar, especially when an industry is in crisis.
Cardinal rule of doing business in Asia: Do not cause people to lose face in public. It’s important who you blame.
Countries don’t manufacture goods, companies do: You are responsible for what your company puts on the market, and there is no excuse for blaming the supply chain of a country for what happens. When you go to a low-cost country, you must manage the risk in its entirety since you take the fall if something goes wrong.
Succession planning: This is vital to the health of a company. Know who will lead the company next and get them ready to do so.
Consumer behavior is unpredictable: This is especially the case when your consumers are kids. They will find ways to do things that you never thought possible and couldn’t have discovered in hundreds of years of testing.
Some fun quotes from today:
“I’m Chairman of the Executive Committee at Hasbro now. It’s sort of like running a graveyard. There’s lots of people below you, but there’s no one listening.”
“Grandchildren are your reward for not murdering your children.” –Howard Anderson, quoting Bill Cosby
Friday, May 29, 2009
For those of you who prefer to read the document rather than a blog, here is the China, Hong Kong and Taiwan stock compensation white paper in PDF form:
Thursday, May 28, 2009
Ted Chan, Ryan Carag & Sandy Lin
MIT Sloan School of Management
Equity compensation is commonly used in the US to reduce the principal-agency problem and increase employee retention. However, much less is known about the use of equity compensation outside of US but general sentiment is that it’s on the rise. This paper explores the use of equity-based compensation to incentivize executives and employees in companies in China, Hong Kong, and Taiwan.
In the past, limited guidance existed in regards to equity compensation in China. However, many Chinese companies went public on the Hong Kong stock exchange as so called “red chip” companies and such firms have an interesting and varied track record with regards to the success of the use of equity compensation. Relative to mainland China and Hong Kong, Taiwan has had a longer history of stock-based compensation. Taiwan’s tech-boom of the 1990s was driven largely by stock-based-compensation largely in the form of stock-bonuses. The data show a steadily growing number of Taiwanese firms offering some sort of stock-bonus program to either its executives or entire core staff. Studies have also shown that these stock bonuses have been very effective in attenuating many of the principle-agent issues inherent in fixed-wage compensation schemes, both at the executive level and at the staff level of organizations, and in helping Taiwanese firms compete against multinational corporations for top-talent.
Equity Compensation in China in Hong Kong
This section looks at stock option compensation in China and Hong Kong. Because the mainland Chinese equity markets have only recently begun to mature, equity compensation in the mainland is intimately tied to the Hong Kong exchange.
Private Unlisted Companies
Stock options are still difficult to execute in China for firms that are not listed on the Hong Kong exchange. In particular, for private companies not yet listed on the exchange, Chinese employees can only exercise stock options if the underlying stock becomes listed or if the employer is acquired by a listed company. In contrast, in the US, employees can exercise their stock option by becoming shareholders in the company while the company is private. This means that using stock options as a means for employee retention for startups in companies in China is limited by the company’s ability to be acquired or go IPO. Many employees may find stock options not as great as a form of compensation given the risk of prolonged vesting period.
Publicly Listed Companies
Historically, stock options in mainland China were considered nominal incentives because, in the eyes of many, all senior executives at state owned enterprises were selected by the Communist Party under the assumption their stock options would never be fully exercised.Today, the idea of nominal stock options is dead. Among overseas listed SOEs, barriers to exercising stock options have been overcome, and some senior executives have received substantial rewards and have been cashing in substantially on them. (Xiu and Ming, 6/27/08)
In contrast, multinational companies listed in foreign exchanges or larger companies already on the Hong Kong exchange have an advantage in using stock options as a compensation tool over private companies. The Hong Kong exchange is by far the best option for companies on the mainland that wish to use this type of structure. In foreign cases other than Hong Kong, a structure known as Share Appreciation Rights (SARs) are used. A SAR uses a system that tracks stock gains on paper, and pay the employee accordingly. Some times this equity is actually traded by an overseas broker with the employee receiving the proceeds.
Gross and Minot (2008) summarize stock option use in China by multi-national corporations:
“MNCs in China often offer stock options (in one form or another) to managers and key employees. However, not all Chinese employees will necessarily be familiar with them. Even if they are familiar with stock options, they still may not necessarily be interested, since the compensation is delayed. Employees may prefer shorter vesting periods. Still, stock options are continuing to gain ground overall. Depending on the employee, stock options can be a useful method – among others – to encourage employee performance and improve retention.“
In private companies, compensation still tends to be up front for most employees except founders and senior management. Equity compensation is not well understood and because it is not received upfront, it is less popular.
Chen, Guan and Ke (2008) provide a comprehensive analysis of how equity compensation is used in red-chip firms. The Hong Kong Exchange defines a red chip company as one that has at least 30% of its shares held by a mainland Chinese company, with mainland companies in aggregate being the single large shareholders. A company can also be considered red chip if between 20 and 30% of its shares are head by mainland Chinese, and theyhold substantial influence on the board of directors. These can include state-owned enterprises, town and village enterprises in addition to privately owned firms. These companies essentially represent a subset of mainland Chinese firms that have gone public in the more liquid and efficient Hong Kong market. (HKEx Website)
Core et al. (2003) point out a major issue with equity compensation in less efficient markets. If the markets do not reflect managerial actions in equity prices, then the effectiveness of equity compensation must be question. It would in those cases cause deeper agency problems rather than properly aligning incentives. Furthermore, companies running in mainland have poor investor protection with regards to controls and disclosures. This has improved over the past 10 years, but remains an issue. Additionally, many of these enterprises have some element of state control, which also affects the way incentives are structured and managerial decisions are made.
Red chip firms are required to annually disclose their stock option compensation data, making it ideal for Chen, Guan and Ke to study it. During their sample period from 1990 to 2005, there were no Chinese regulations on stock options. Before this period, firms list in China were prohibited from issuing options. Thus, companies who wished to do so had to become red chip firms. At the end of 2005, China implemented a regulation permitting stock option compensation. Citic Securities, a major brokerage, is one mainland Chinese company that has implemented options according to Gross and Minot (2008).
Chen, Guan and Ke point out the regulations on stock options in Hong Kong are relatively similar to the US except for two points. First, no single participant can receive more than 25% of all the securities in a company’s stock option plan. Our interpretation is that this limits companies from concentrating too much interest in the share price in the hands of senior management. Secondly, the exercise price cannot be more than 20% below the average closing price of the stock for the 5 business days immediately preceding the option grant. This limits how far the option granted can be in the money.
Additionally, Hong Kong has relatively simple accounting rules for stock options. The initial grant of options is not a taxable event for the company or recipient, even if the grants are in the money. Hong Kong has low overall taxes (15 to 17%) on income, making it an attractive place to be granted in the money or high upside options.
Gross and Minot also mention that the Chinese government initiated a new plan which allows foreign exchange purchases for the purpose of stock options in foreign companies with prior approval from the government. Procter & Gamble China was the first to participate in this program in February of 2008. (Gross and Minot, 2008).
Effectiveness of Equity Compensation in China and Hong Kong
Chiu, Luk and Tang (2002) found the biggest factors to retaining employees in Hong Kong were:
1. base salary
2. merit pay
3. year-end bonus,
4. annual leave
5. mortgage loan
6. profit sharing
In mainland China, Chiu, Luk and Tang found slightly different:
1. base salary
2. merit pay
3. year-end bonus
4. housing provision
5. cash allowance
6. overtime allowance
7. individual bonus
In both cases, merit pay means variable pay including options.
Xi (2006), cited by Conyon and He (2008) argued that independent directors exist not so much to provide oversight of senior management, but rather to open up connections within the government. In some way, this is not that different from companies anywhere in the world.
Conyon and He (2008) found that at least for CEO, options are working in some respect to align incentives for managers. They found that CEO equity incentives were positively correlated with firm size and firm risk profile. Their paper implies that China’s corporate governance regulations have done well to align managerial interests with the interest of shareholders. This study counters to a certain extent that Chinese corporations are subject to ineffective controls and regulations.
Cultural Issues in the Effectiveness of Stock-based Compensation
For the Chinese, the year-end bonus has traditionally been the way of rewarding employees. This is especially the case for lower level employees in blue collar and retail positions. Paid out around the Lunar New Year, these bonuses are often as much as 40% of pay. However, at a higher level, especially amongst “males, white-collar-employees, high performers, achievement oriented employees and those who already work under a merit plan tend to favor merit pay or the “equity approach”. (Chiu, Luk and Tang, 2002)
Different from U.S. executives, Red Chip firms’ executives rarely exercise vested stock options during their tenures in the firm. (Chen, Guan, and Ke, 2008) The Economist's article, “False Options” suggests that this can be due to cultural norms in China where cashing out on stock options may indicate disloyalty to the firm since once the options cashed out the alignment of ownership and management no longer exists. This calls into question how effective those options actually would be in motivating employees.
Furthermore, employees often do not understand the value of stock options. This however, can be corrected with time as more companies implement equity-based compensation programs and employees become educated in their value as a whole. But, similar to the US, stock options and their lengthy vesting periods are difficult for younger employees to understand. "Stock options don't really work with young people," explained one HR manager. "Saying we'll give it to you in five years doesn't fly. They want options and cash." (Melvin, 2001)
Equity Based Compensation in Taiwan
In contrast to Chinese mainland firms’ compensation, stock-based compensation has been more integral in Taiwan's industry growth, particularly in the tech-space and has been an integral part of the overall compensation for a growing number of firms in Taiwan.
Taiwanese tech-firms such as TSMC used stock-based-compensation as a tool to compete in the labor-force market. During the tech boom of the 1990s, for example, local Taiwanese companies were able to attract and retain top-notch employees through stock-based-compensation, even so far as being able to draw top talent from competing MNCs (Han, Shen 2004).
Figure 1. Number of cash bonus and stock bonus plans in Taiwan during 1990's tech-boom (unit: establishments)
Source: Monthly Bulletin of Labor Statistics, Taiwan
Clearer guidance on treatment around taxation on stock-incentives through the last two decades has made for a fairly well developed body-of-knowledge among hiring companies and their employees.
Stock-based compensation in Taiwanese firms has come largely in the form of stock-bonuses, which while mechanically similar to US employee stock option plans, have a few key distinguishing characteristics. (Han, Shen 2004).
- US Employee Stock Option Plans are typically structured through vesting schedules to be long-term incentives whereas Taiwan's stock-bonuses are in contrast relatively short term, given that the stock-bonuses given by Taiwanese high-tech firms are typically allowed to be sold immediately.
- US ESOPs are structured to encourage future performance, whereas Taiwanese stock bonuses are awarded based on past performance.
- US ESOPs recipients typically have to purchase the stock whereas employees in Taiwan have to make no such payment on their stock bonuses. This should be noted that the mechanics of a typical US ESOP execution allows a simultaneous buy-then-sell transaction where the employee executing the option does not have to make a cash outlay, but there are still differences in tax implications.
- While stock ownership is typically small portion of a US employee's compensation (at least in the immediate term) in Taiwan, stock-bonuses typically represent a very substantial portion of an employee's total annual compensation in firms where stock-bonuses are offered. This is explained primarily by the fact that Taiwanese firms typically pay less that their MNC counterparts, and as such use stock-based compensation to make their overall compensation competitive to those of MNCs. Such a sharing scheme as a higher percentage of employee compensation works particularly well in firms with high profitability and stock prices or in smaller firms who are bootstrapping their growth through profits.
Effectiveness of Stock-Based Compensation in Taiwan
There are arguments for and against stock-based compensation (and firm-performance-based bonus compensation in general) which tend to follow the similar lines in economics discussions.
Arguments for include:
- Since bonus amounts are tied to overall firm performance, bonuses induce employees to exert more effort to improve operational efficiency.
- Since bonus amounts are tied to firm profitability, bonuses can attenuate agency problems found in fixed-waged employment and can reduce the impact of conflicts of interest between principal and the agent. (Han and Shen 2004, Blasi et al., 1996; Kruse, 1993).
- Since the payment of the bonus is a variable portion of the total compensation, the bonus may produce an "efficiency-wage" effect which reduces shirking, turnover and attract better applicants (Han and Shen 2004, Akerlof and Yellen, 1986; Yellen, 1984).
- Bonuses can create group pressure, motivating employees to monitor and push each other to higher performance and to cooperate towards overall better firm performance (Han and Shen 2004, FitzRoy and Kraft, 1986; Kruse, 1993; Levine and Tyson, 1990).
Arguments against bonuses are primarily around the free-rider problems inherent with group-based incentives, given bonuses are tied to overall firm performance. An additional argument against bonuses has to do with the theory of team production (Han and Shen 2004, Alchian and Demsetz, 1972), which says that optimal employee monitoring and management happens when the management has residual equity in the firm. In the case where the employees share the equity (thereby diluting management's equity relative to the case where employees did not receive stock-bonuses), management will have less incentive to monitor and supervise the employees, thereby causing reduced firm performance.
Empirically, Taiwan's high-tech firms have experienced an extremely rapid growth over the past two decades, with many practitioners and academics believing that stock-bonuses have lead to good outcomes with regard to attracting, retaining and incenting firms' human capital. (Han and Shen 2004, Biagioli and Curatolo, 1999; Chen and Wang, 2001; Chiu and Tsai, in press; Tsao, 1999).
Chui and Tsai also found that stock-bonuses have over many years increased the average employee's psychological ownership and organizational citizenship. They also found that given the heavier distribution of stock bonuses to more senior and high-performing employees has shown potential to address the free-rider issues brought up by detractors of stock-based compensation. They found that the growing use of these Taiwanese-style cash and stock bonuses has had continuously positive effects on motivation, attraction, retention and performance of the studied Taiwanese tech-firms.
The growth and potential effectiveness of the Taiwanese-style stock-bonuses to attracting top talent might be shown by the example of Lien-Fa Technology Co., a Taiwanese IC design firm, who gave out stocks worth approximately US $514,285 on average to each of its 248 employees in 2001 and a considerably higher US $739,706 one year later (Han and Shen 2004). More generally, the effectiveness of such compensation structures is that many MNCs such as IBM, which was once viewed as a place for “the special group of preferred employees”, have been seeing “fierce warfare” from local, Taiwanese high-tech firms in hiring top talent. Many MNCs have even lost some high-level, key employees to local high-tech firms, in a striking similarly to the experience of large US high-tech firms to startups.
Effectiveness of Stock-based Compensation: at the Executive Level in Taiwan
In their paper, The Determinants of the Relationship between Top Executive Stock-Based Compensation and Performance Measures: A Study of Taiwan, Hung and Wang examined what effect stock-based compensation had on firm performance. They found that in general, stock-based compensation was effective at the executive level and identified the following four determinants on level of effectiveness:
- The President’s stock-based compensation will be relatively more sensitive to market performance, as compared to accounting performance, the larger the growth opportunities of the corporation.
- The President’s stock-based compensation will be less sensitive to market performance and accounting performance, the larger the size of the corporation.
- The President’s stock-based compensation will be relatively less sensitive to market performance, as compared to accounting performance, the greater the risk of the corporation.
- The President’s stock-based compensation will be relatively less sensitive to market performance, as compared to accounting performance, the larger
- the leverage ratio of the corporation.
The findings are intuitive in many ways, aligning with how much actual direct control executive actions have on the outcome of the company’s performance versus the company’s inherent growth potential through its core-technology, for example. Put in other terms, a fast car can still go relatively fast even it’s not skillfully driven, but will achieve its peak performance, near its limits of control, in the hands of an expert driver.
Effectiveness of Stock-based Compensation at the R&D/Staff Level in Taiwan
In Compensation Structure, Perceived Equity and Individual Performance of R&D
Professional: The Moderating Effects of Achievement Orientation, Uen and Chien examined the effectiveness of stock-based compensation at the R&D staff-level of high-tech firms, examining 258 high-tech firms in China. They found the following correlations:
- Compensation structure has a positive correlation to an employee’s perceived equity
- Employee perceived equity is positively correlated to individual performance
- Individual performance is affected by compensation structure through perceived equity
- The interaction of compensation structure and achievement orientation does influences perceived equity.
In short, they found that employees feeling of the fairness of their compensation to their level of input (effort, seniority, gender, amount of responsibility, working conditions, knowledge, skills, and abilities required by the job) in these high-tech firms was positively affected by their compensation structure's inclusion of stock-based compensation. This backs up Chui and Tsai’s findings regarding the positive correlation between stock-based compensation and psychological ownership.
Conclusion & Recommendation
We conclude from our study of China/Hong Kong and Taiwan that varying levels of maturity affects the effectiveness of stock-based compensation in incentivizing and retaining key employees for both larger companies (MNC’s and red-chip firms) and startups. For more mature markets such as Taiwan, stock-based compensation is an effective tool to attract, incentivize, and retain employees and is used as a tool against losing talent against MNCs. However, in China, the use of stock-based compensation is only implemented since the beginning of 2006 and is currently only limited to red-chip companies and MNCs that are publicly listed, commonly on the Hong Kong Stock Exchange. The use of stock-based compensation for startups in China are not as common because employees can only exercise their option if the underlying stock is publicly listed. However, we foresee that China will update its regulations on stock-based compensation for startup companies in the future to become more similar to the US, and in turn allow startups to attract and retain employees through the stock-based compensation.
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