If there is no dividend, what will happen to Huawei?

Huawei is in a difficult period, out of the company and employees to spend the difficult time together, Huawei at this time does not pay dividends, or reduce some of the dividend amount, it seems reasonable. However, at this time, dividends are still paid, reflecting the responsibility of the enterprise

Text | Gu Lingyu

Edit | Xie Lirong

Focus on Huawei's 2021 employee stock ownership dividend plan, and the focus is not on the dividend itself.

In the eyes of the outside world, this is a mirror that reflects Huawei's situation - entering the fourth year after the sanctions, at the end of January 2022, Huawei announced the 2021 employee dividend data, and it is expected to pay dividends of 1.58 yuan per share. Since the relevant specific information has not yet been disclosed, according to previous data, the total number of Huawei shares exceeds 20 billion shares, which means that Huawei's dividend amount will exceed 35 billion in 2021.

A number of Huawei employees confirmed the news to Caijing reporters. A Huawei mid-level with a rights issue of more than 1 million shares told the "Finance" reporter that there had been speculation about the company's dividend figures this year, "basically in line with 1.58", because it meets psychological expectations, he is not particularly excited about the million dividends that will be obtained.

In fact, due to various well-known reasons, Huawei's dividend amount is declining year by year, public data show that from 2015 to now, Huawei's annual dividend amount is 1.95, 1.53, 1.02, 1.05 yuan, 2.11 yuan, 1.86 yuan, Caijing reporter exclusively learned that in 2018, although Huawei said that the dividend was 1.05 yuan, but in fact the dividend was 2.5 yuan at that time. The difference in the middle is used to allocate shares to employees, that is to say, 2021 is already the lowest dividend amount for Huawei after entering the sanctions.

Huawei is in a difficult period, for the sake of enterprises and employees to spend the difficult time together, Huawei does not pay dividends at this time, or reduce some dividend amounts, it seems reasonable, but at this time still dividends, reflecting the company's responsibility. After the news came out, some people on the outside envied, some people sighed, and the internal feelings were different.

A fresh graduate who is about to join the company sighed to the "Finance" reporter, "When I participated in the school recruitment in October last year, HR also said that each share could be divided into 1.89 according to last year's dividend amount, and now it has shrunk before it has been hired, catching up with the worst time of the market." ”

Is this really the case?

The deep meaning of dividends

According to Huawei's official data, Huawei is expected to achieve sales revenue of about 634 billion yuan in 2021, a decrease of about 200 billion yuan compared with 2020, so many interpretations believe that Huawei dividends in the downside period of the enterprise is still willing to spend a lot of money to motivate employees despite difficulties.

This is indeed true, but it is not entirely true.

Huawei is not a public company, and Huawei said in its annual report that Huawei Investment Holding Co., Ltd. is a private enterprise that is 100% owned by employees.

The so-called employee shareholding, holding a virtual stock. This system began in the 1990s, when Huawei was in a difficult situation, issuing virtual shares to employees instead of paying wages; stocks were not granted in vain, employees needed to purchase their own funds, and the shares were centrally managed by the trade union, which was essentially to raise funds for business activities.

It is worth noting that when the employee leaves the company, the company will buy back the shares, and the repurchased shares will be converted into reserved shares. At this time, the employees buy shares and the company buys back shares at a price of 1 yuan per share, according to 15% of the company's profits for dividends, and the annual dividend is a few cents.

In 2001, Huawei once again carried out the reform of the shareholding system, the purchase price and the company's repurchase price were based on the company's net asset price in the previous year, and then added TUP (TimeUnit Plan), this dividend does not need to contribute, the company according to the position, level and performance of different amounts of distribution, valid for five years, can be the same dividends and appreciation as equity.

A Huawei employee holding a TUP explained to Caijing that in general, the performance is A, that is, the top 5% of employees will be equipped with TUP. It will take at least three years for newcomers to enter Huawei to receive their first dividend, for example, there will be no dividends in the year in which employees are allotted. In the second year, you get 1/3 dividend rights, in the third year you get 2/3 of the dividend rights, in the fourth year you get all dividend rights, and in the fifth year you get all dividends, and you can also enjoy the benefits of stock appreciation. At the end of the five-year period, all TUP stock interests were cleared.

Therefore, understanding Huawei's equity incentive system can be simply divided into two parts:

The first type of virtual restricted stock in the general sense, which needs to be purchased at their own expense, is now priced at 7.85 yuan per share. It can be held for a long time, and the company will buy it back when you leave.

The second type of TUP is the company's short-term incentive allocation, which can be taken for 5 years, and will automatically expire after 5 years.

Both types of stocks require the company to allocate them first, and even self-funded virtual shares are not eligible to buy after they are allocated. The above-mentioned interviewed employees said, "Giving shares is an affirmation of employees." "There is an understanding within Huawei that Huawei affirms that there are two kinds of people: one is an old employee who has bought the company's shares during the company's difficult period; the other is an employee with good performance and a certain amount of work.

Official data released by Huawei shows that the company has 194,000 employees. According to the 2020 annual report, as of December 31, 2020, the number of people participating in Huawei's employee stock ownership plan was 121269, and if it is estimated according to the total of 35 billion, each employee can be divided into at least 290,000.

A number of interviewed employees told the "Finance" reporter that the amount of employee dividends depends on the contribution, "similar to two or eight open", "the locomotive is inspired", some people can get millions, most ordinary employees tens of thousands of yuan.

For example, with the current time node pushing forward, Huawei employees with less than five years of work experience generally have a rights issue of less than 50,000 shares, but if the working experience reaches 10 years, there are also good performance, the allotment of shares can reach 400,000 shares, and the stock value and dividends exceed millions.

The management of Huawei shares consists of 115 representatives of shareholding employees, including almost all important management personnel of Huawei, who exercise relevant rights on behalf of all shareholding employees.

Ren Zhengfei is also involved in the employee stock ownership plan. As of December 31, 2020, Ren Zhengfei's total capital contribution was equivalent to about 0.90% of the total share capital of the company. According to the shareholding ratio, Ren Zhengfei's dividend should exceed 200 million yuan.

In other words, retaining and encouraging management to struggle is the hidden essence of Huawei's dividend system.

If there is no dividend

The employee stock ownership plan was once considered a key element of Huawei's early success. In this way, Huawei has cultivated and retained a large number of talents, which have become the core reasons for Huawei's rapid growth over the years. The employee stock ownership plan organically combines the long-term development of the company and the personal contribution and development of employees, forming a long-term common struggle and sharing mechanism.

Therefore, to understand the deep meaning of dividends, we may wish to think backwards, if Huawei does not dividends, what will happen?

For technology companies, talent is the most important asset, and equity incentives are a very common means of talent incentives in the industry. Huawei's particularity mainly lies in two points, one is that in addition to the aforementioned TUP, the stock needs to be purchased; the other is that employees must return the shares to the company when they leave.

According to Huawei's rules, if employees do not want to continue to hold equity, they can sell the stock back to the company, it is foreseeable that if there is no dividend, for Huawei, there will be a large number of employees will sell the stock to the company, Huawei will have to spend more money to buy back employee shares, at this time, there is a question that is often overlooked, how much is a share of Huawei worth?

Huawei's current share price is 7.85 yuan, which is determined by Huawei internally, although the pricing mechanism is not known to the outside world, but the stock price has never fallen. For employees, stock appreciation is not only reflected in dividends, but also in stock price appreciation. This means that once Huawei buys back shares from employees, it often has to pay more money than employees spent to buy stocks at that time. In this case, the already tight cash flow will inevitably be worsened, or even unable to bear it.

Therefore, for Huawei, in order for the cash flow to operate normally, it is impossible to stop dividends.

This is well known to employees who hold Huawei stock, and most of them believe that dividends are a normal feedback mechanism, not simply a reward from the company. "It's a normal income, at least higher than most wealth management products." Several employees interviewed said.

The dividend system also plays a non-compete role to a certain extent. According to the "Finance" reporter, retired employees can retain stocks and enjoy dividends every year, provided that they do not go to competitor companies. In addition, when Huawei split Honor, Huawei employees who joined the new Honor were also specially authorized to retain shares.

For new and old employees, the allure of dividends is completely different. The income of Huawei employees is divided into three parts: salary, stock, and bonus. According to the financial report, Huawei's expenditure on wages, salaries and other benefits in 2020 reached 139.095 billion yuan, and the average compensation of Huawei employees reached 700,000 yuan based on 194,000 employees.

For new hires, most of their income comes from bonuses and salaries. According to Huawei's system design, a fresh graduate entering Huawei needs to work for at least three years and perform well to get the first dividend incentive, and usually this money is not too much, so this system is not very attractive to them.

However, if it is a middle-level or an employee who has obtained a large amount of equity in the early days of working at Huawei for many years, a dividend will inevitably earn millions of dollars. And once they leave, that income no longer exists. In this way, equity incentives effectively increase the cost of employee job hopping.

In 2008, Huawei's virtual share system was adjusted to implement a saturated allotment system to stipulate the upper limit of employees' allotment, and after each level reached the upper limit, it would no longer participate in the new allotment. This provision restricts old employees who already have huge equity stakes from continuing to allot shares, that is, favoring new employees.

However, for the current Huawei, how to divide the cake is obviously a challenge. Huawei advocates the culture of strivers, and it is difficult to discuss the causal relationship between giving high salaries to strivers and this culture, founder Ren Zhengfei once said: "More money is given, not talents have become talents." "This has caused Huawei to believe that Huawei should give employees high salaries, which has exacerbated the gap between inside and outside Huawei after years of rapid development into the downturn period – this challenge is not only owned by Huawei in China's technology industry."

"In the case of good performance, these are all positive cycles, and once there is a problem with the growth rate of performance, all the previously ignored distribution contradictions will become unsolvable problems." A former Huawei employee told Caijing reporter.

Dividends are part of the diversified income design, and the diversification configuration itself is to enhance the company's ability to balance.

In addition to material incentives, Huawei also pays attention to non-material incentives for talents.

A Huawei employee told Caijing that Huawei's various honors pay special attention to the sense of ceremony, and usually Huawei's honorary medals for outstanding employees will be printed with the names of employees. These medals are even bought by many people on the black market. He showed the Caijing reporter a medal he had won, and on the outside of the medallion printed with the words "No retreat is the road to victory", he carefully wrapped the shell.

"It can be left for the child to see." He said.

"Caijing" reporter found in the interview that Huawei's current open recruitment for the society is mainly for senior experts, the number of junior positions is reduced, and the emphasis on different business talents is also different, and the increase in the number of places in this year's school recruitment is almost all given to the smart car business. And digital energy talent is called "can't be mined" by Huawei internally, because this is the best business to do de-A (US)." ”

From this perspective, whether it is material incentives, non-material incentives, or the adjustment of recruitment and talent development policies, it can alleviate the chain reaction caused by the decline in performance to a certain extent, including the decline in employee income; insisting on dividends in difficult times is the embodiment of the spirit of Huawei's contract. But in the long run, the ability to perform the contract ultimately depends on the development of the company.

On February 7, the first working day of the year, the news of Huawei's dividends flowed out, some people envied, some people lost, and some people calmed down. A former Huawei mid-level told Caijing that when he left Huawei, he could choose to take away nearly two million shares worth tens of millions of yuan, provided that he retired as a person - not to go to other companies or start an independent business.

According to Huawei's stock dividends in recent years, the amount of tax money that two million shares can receive each year is more than 3 million, which can fully guarantee his rich retirement life. However, he chose to sell the stock back to the company, in exchange for the money to buy two apartments in Shenzhen.

Leaving the stock behind, taking away the resilience of Huawei. He now works for another tech company and "has a long way to go and can't think entirely of his career from a financial perspective." ”

The author is a reporter for Caijing

There's so much more to see