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An employee stock bonus was the main method for companies in Taiwan to reward their employees in the past. However, from 2008, companies should treat employee bonus(EB) as expenses instead of after-tax distribution of net income. This new accounting treatment not only affects company operating incomes but causes negative impacts on employee’s real incomes. This study explored whether treating EB as expenses will influence on distributive manners of EB for companies, employee’s real incomes, and investors.
The study adopted descriptive statistics to compare distributive manners of employee bonuses before and after 2008. It examined whether distributive manners will be changed by listed companies in Taiwan and real incomes will decrease for employees. In addition, this study adopted multiple-regression-analysis and chose P/E ratio as dependent variable to examine whether investors are willing to give higher P/E ratio to companies when they understand shareholder could gain real advantages if companies recognize EB as expenses.
The study found after recognizing EB as expenses, companies were required to use market price as calculated bases to distribute EB, new accounting treatment diminished motivational effect on employees. Hence, companies started to reduce shares on EB and tried to compensate their employees whose real incomes have been decreased. Even though companies adopted remedial measures, reimbursements still couldn’t recover all employees’ losses. This result will bring huge impacts on company human resource management.
From shareholder’s point of view, this situation that companies issued many EB in the past and diluted shareholders’ wealth will be improved after recognizing EB as expenses. Empirical evidence didn’t highly support the theory of this study which was shareholders could give higher P/E ratio and stock price will rise as well because of company residual value increase. However, it is confirmed that recognizing EB as expenses will make information concerning net incomes more valuable for investors when they evaluate company’s future value. In other words, company’s profit will only belong to shareholders, and profit will not be diluted due to EB anymore.
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