benefits brought by equity incentive

1. Equity incentive is conducive to the company to retain talents, restrain management talents and attract talents.

For example, the equity incentive system of Huayuan Real Estate adopts stock options as an incentive tool, and the incentive targets are managers and ordinary employees, with a total incentive amount of 31 million shares, of which senior managers * * * hold more than 1 million shares, and employees range from 1,111 shares to more than 1,111 shares. The exercise period stipulates that the implementation of employee stock warrants can be exercised one year after being granted in accordance with the listing rules of the Hong Kong Stock Exchange, and can only be sold four years later. The distribution basis is based on the length of service and the number of employees.

the average employee turnover rate of the company was 15.7% in the two years before the implementation of equity incentive, and it dropped to 12.1% in the two years after the implementation.

second, the equity incentive is conducive to the company to reduce the cost of human compensation and incentive funds, as well as to the rapid development of the internship company and the maximization of shareholders' interests.

for example, 1, the incentive object of Vanke's performance-based restricted equity incentive plan is that Vanke does not exceed 8% of the total number of employees, and the conditions for extracting incentive funds from the equity incentive plan are to meet the dual requirements of the company's annual net profit growth rate exceeding 15% and the company's fully diluted annual return on net assets exceeding 12%, while Vanke's annual sales revenue in 2111 increased by 41.4% and the net profit growth rate exceeded 32.1%. The annual return on net assets reached a record of 18.17%, which created a net profit of 9.625 billion yuan for shareholders in that year, achieving the goal of maximizing shareholders' interests.

For example, in 2,111 companies, more than 51% of the executive's salary composition is option income, and the proportion of option income in salary is increasing year by year (see figure). In 2116, 7% of the large companies with assets of over $11 billion in the United States accounted for long-term incentive plans, accounting for 65%. The composition of CEO's salary is: the basic annual salary accounts for 17%, the bonus accounts for 11%, the weight of spot salary is reduced, the option income based on the company's performance has increased from 25% in 1992 to 51% in 2111, and even a similar "one dollar" salary has appeared.

third, equity incentive is conducive to the rational distribution of the profit-added part after the company's development.

For example, ZTE (34.51, +1.19%) Co., Ltd. (hereinafter referred to as ZTE) is the largest listed communication equipment manufacturing company in China and one of the 521 key enterprises supported by the China Municipal Government. In 2116, ZTE was identified as a state-level innovative enterprise by the Ministry of Science and Technology, the State-owned Assets Supervision and Administration Commission of the State Council and the All-China Federation of Trade Unions.

since 2116, ZTE has adopted the method of restricted stock to carry out equity incentive, and the incentive targets include senior executives and employees in key positions. The restricted stock incentive plan is valid for five years, of which the first two years are the lock-up period and the last three years are the unlock period. During the unlocking period, if the unlocking conditions specified in the equity incentive plan are met, the incentive object can apply for unlocking in three times: the unlocking period is 1, 2 and 3 years after the lock-up period expires, and the number of unlocking is no more than 21%, 35% and 111% of the total number of shares awarded. The unlocking condition of ZTE's equity incentive plan is that the weighted average return on equity in each year is not less than 11% (based on the low value calculated before and after deducting non-recurring gains and losses). If this indicator fails to meet the standard, it cannot be applied for unlocking in the current year and cannot be replenished in the future. In addition, no matter whether it is the company or the incentive object, once the financial report is issued with a negative opinion or there is illegal behavior, it will lose the qualification to grant or unlock, which invisibly forms a constraint on the behavior of the company and employees.

ZTE's weighted average return on equity in 2117 and 2118 was 11.94% and 12.36%, respectively, which met the unlocking conditions. The number of shares unlocked for the first time is 14,559,718. As of July 2, 2119, ZTE's first equity incentive plan awarded 3 274 people (including 19 directors and senior managers) for the first time, of which more than 61% were R&D personnel. The incentive for R&D personnel has played a role in stabilizing the R&D team and ensuring the performance of the company's 3G business. In the first half of 2119, ZTE's share in the global wireless market, especially the 3G market, was improved, and the company continued to maintain a steady growth trend.

the bitter fruit of equity incentive

China's implementation of equity incentive for business operators is an "imported product" introduced from foreign experience. The original intention is to mobilize the enthusiasm of operators and do a good job in enterprises. However, if we don't design and control the equity incentive systematically, we will not only fail to achieve the expected goal, but also bear many bitter fruits, some of which will be miserable.

First, the most common "bitter fruit"

On the basis of investigating the experience of a large number of equity incentive projects, it is found that the following kinds of "bitter fruit" caused by the implementation of equity incentives are the most headache for the implementers of equity projects:

(1) The income of executives has gone up sharply, but the benefits of enterprises have dropped sharply;

(2) resigning and cashing in has become the first choice of many executives;

(3) Equity incentive has become an equity dispute

1. The income of executives has gone up sharply, and the benefits of enterprises have dropped sharply

Equity incentive was once sought after by China enterprises, but at the same time, the income of executives has increased greatly, while the benefits of enterprises have dropped sharply. According to statistics, from the beginning of 2116 to March 21, 2118, 91 listed companies in Shanghai and Shenzhen only announced their equity incentive plans. During this period, the income of the top management of most enterprises has gone up, while the benefits of enterprises have fallen sharply.

For example, the shares held by the senior executives of Yili and Haiyao reached 9.681% and 9.88% of the total share capital respectively. In April 2116, Pan Gang, the senior executive of Yili (41.18 -2.51%), received 15 million shares, at the exercise price of 13.33 yuan at that time, and the equity incentive he received was more than 111 times that of his salary of 874,111 yuan that year. After the second equity incentive, Gree Electric executives Zhu Jianghong and Dong Mingzhu, whose total share of the total number of incentive shares increased from 42.18% in the first time to 46.76%, were worth more than 91 million yuan at that time, which was called getting rich overnight. And what is the benefit of the enterprise? It is not ideal. For example, in 2117, Yili lost 9.7 million yuan in operating profit, while Hainan Pharmaceutical lost about 51 million yuan.

2. Resignation and cashing in have become the first choice of many executives.

As the decision makers and operators of the company, the executives of listed companies are most aware of the actual situation of the company, the actual value of the company's shares and the development prospects of the company. When the company's share price has risen to the peak through various means or riding the wind of the stock market, the first question they want is not how to further develop the enterprise, but what to do with the stock in their hands.

key points, and Article 142 of the Company Law stipulates that the directors and supervisors of a company shall not transfer more than 25% of the total shares of the company each year during their term of office; No, what if the bubble bursts and the stock price falls? The best choice is to resign, and if you resign, you can sell it at once. As for what will affect the enterprise, it doesn't matter. According to reports, when the stock price reached its peak, many enterprises resigned and cashed in. For example, the former vice president and director Ren Jinshi, the director Wang Jianmin resigned in March 2116, and then the former chairman Zhang Yabo resigned in April 2117. According to the relevant media, Siyuan Electric, Xinhecheng, Dehao Runda, Kehua Bio, Tianbang, Haixiang Pharmaceutical and other companies all have the phenomenon of executives resigning and cashing out to varying degrees.

3. Equity incentive becomes equity dispute

In the process of equity incentive, unreasonable or imprecise operation will lead to many disputes. The most typical case is: in 2117, Shellett's two founders and shareholders went to court. In 2112, Chai Guosheng, the chairman of Shellett, voluntarily donated his shares, which accounted for 3.8% of the company's total share capital, to Li Zhenghui, then the company's deputy general manager, and stipulated that Li Zhenghui's service in Shellett Company (2.18 -4.15%) must be over five years from October 1, 2113. If he quits midway, he will pay the equity by dividing the original value by the service years. In 2114, Chai Guosheng once again gave Li Zhenghui 1.7% of the company's equity under his name, and Li Zhenghui promised that he would not voluntarily leave the company for any reason within five years from July 5, 2114, otherwise he would give Chai Guosheng economic compensation as agreed. But Li Zhenghui resigned on August 25, 2117. A month later, Chai Guosheng sued Li Zhenghui for failing to fulfill the relevant agreements and commitments, demanding that he return the 5,223,886 shares of listed companies previously donated by the plaintiff and compensate for the losses. The Supreme People's Court believes that Li Zhenghui's 3.8% shares should be "donated" by Chai Guosheng due to lack of payment evidence. However, it does not support Chai Guosheng's request that Li Zhenghui return all his donated shares. This is the first case of equity dispute in China, and then this kind of equity dispute case keeps reappearing.

second, the analysis of the causes of "bitter fruit"

why did this bitter fruit come into being? Of course, there are many reasons, such as subjective, objective, above, own and so on. The main reasons can be summarized as the following three points:

1. Incentive implementation, neither conditions nor constraints

The implementation of equity incentive is conditional, and it needs a strict company management system and performance appraisal system as support. Not all enterprises are suitable for equity incentive, nor can an enterprise do any equity incentive model. Therefore, before equity incentive, it is necessary to scientifically identify whether the corporate governance structure and governance system are sound, otherwise, equity incentive will not only bring the expected effect, but will cause bad consequences. For example, in early 2119, a chemical company in Zhejiang implemented equity incentive. This enterprise is engaged in the research, development, production and sales of high-grade textile printing and dyeing agents, and it is in a period of rapid growth. It has also started to be approached by venture capital, and the listing has also been put on the agenda. Because the company has not been established for a long time, it has developed too fast, and there is no perfect company system and performance appraisal system, the company management is chaotic, and the boss can't take care of all aspects of the company by his own energy. In order to standardize the management of the company, the boss decided to implement the equity incentive. The original intention was: to implement the equity incentive, and the incentive object was the owner of the company, so that they would work diligently without being urged by their superiors. However, after half a year's practice, the chemical enterprise not only failed to achieve the expected purpose, but also made the salary and expenses increase rapidly and the profits of the enterprise drop sharply.

2. Scheme design lacks both review and supervision

Can the company engage in equity incentives, when and how? After implementation, who will supervise? Or even if there is censorship and supervision, there are no rules to follow and no laws to follow. This will lead to the phenomenon of "high incentive" and "excessive incentive", which are not opposite to the improvement of efficiency and efficiency of enterprises. Both Yili and Haiyao belong to this situation.

there are both incentives and constraints, which is a complete and scientific mechanism. Unlike bonus, the setting of bonus only needs an extensive clause, while equity incentive needs more perfect, standardized and scientific rules to maintain its long-term incentive effect. If the scheme design is not comprehensive and reasonable, the enterprise may get into trouble. For example, in 2118, Zhongguancun Oriental Huasheng Technology Co., Ltd. will soon be listed on Zhongguancun Third Board. The company originally had three shareholders. Considering that the shares will increase greatly after listing, Luo Ping, CEO of the company, thought it was a good opportunity to seek benefits for everyone and boost morale, so he absorbed nearly 41 employees in the restructuring process, of which the least one was only 3,111 yuan, accounting for one tenth of the company's total share capital. However, as soon as the company was listed on Zhongguancun Third Board, some minority shareholders asked the business owners to buy their own shares on the grounds of urgent need for money. According to the Company Law, the promoters shall not transfer the shares within one year after the limited liability company is changed into a joint stock limited company. These employees are all shareholders in the process of restructuring, so they are all promoters, so they cannot transfer their shares immediately. Business owners are forced to lend their money to employees first.

3. Cash in equity, there are neither laws nor regulations

Implementing equity incentives for operators was once called "golden handcuffs" for operators, which made them have long-term behaviors for the development of enterprises. The bitter fruit of reality tells us that this is not the case. Operators are still eager for quick success and short-term behavior, and even in order to make profits for themselves, senior managers may use illegal methods to falsely report operating income and profits, and Enron incident is a typical representative. The Enron incident made the market value of nearly $61 billion disappear instantly, and all kinds of American workers' retirement funds and personal pensions invested in Enron suffered a disastrous blow. However, just the day before filing for bankruptcy, Enron's senior managers gave themselves a cash reward worth $55 million, and a week ago they just gave themselves $51 million.

what's the problem? It lies in the lack of necessary, strict and reasonable laws and regulations on the realization of equity. In addition, there are loopholes in the provisions of the current Company Law. Since I can't sell all my stocks when I'm in office, I'll resign. If I resign, the law will not control me. The current executives who have resigned and cashed out have exploited this loophole.

Difficulties in implementing equity incentives

Apart from the common problems existing in the implementation of equity incentives by various companies, the shares of unlisted companies cannot be listed and traded in the securities market due to their failure to go public. This makes the company's stock have no market price, and can't reflect the company's value in real time and dynamically through the price discovery function of the securities market. It also makes the company's stock flow lack a platform for realization and its liquidity is not strong. Therefore, non-listed companies still have their own unique difficulties in implementing equity incentive, which can be summarized as follows:

1. There are great differences in performance evaluation

The design of performance evaluation indicators is the basis of an equity incentive plan, and the company's equity incentive plan is linked to the work performance of the incentive object, so how to evaluate the work performance of the incentive object has become a prerequisite for equity incentive. For listed companies, the stock market price reflects the company's operating conditions to a certain extent, so it provides an important reference index for evaluating employees' job performance, especially under the background of mature and effective capital market. For non-listed companies, in the absence of the stock market price, how to determine the company performance appraisal system, establish the appraisal method, how to calculate it specifically, and how to link it with option incentive is the most challenging problem for companies to implement equity incentive. Non-standard, unfair and unjust performance appraisal can not only make the equity incentive plan give full play to its incentive function, but may also bring internal contradictions to the company, dampen employee morale and cause legal disputes.

2. It is difficult to determine the exercise price

For listed companies to implement equity incentives, the general practice is to take the market price of the company's shares at the time of signing the option agreement as the basis of the exercise price of the options. Different from listed companies, there is no corresponding determination of the exercise price of non-listed companies when formulating equity incentive plans.