The "Three Realms" Of Equity Incentive In The Internet Era

In the Internet era, competition between enterprises has changed into a competition between business mode and talent incentive mode.

In the face of the brutal "dwelling" pressure, the incentive mode of traditional talents, which is supported by bonus and mention, is becoming more and more feeble.

It is the first impetus for enterprises to realize the leaping development by analyzing the essence of talent motivation, seeking effective and long-term incentive mode, and grasping the "heat" of attracting and retaining core backbone.

As a controversial core talent incentive tool, equity incentive has been drawing people's attention.

It is easy to think of the prestige of equity incentive to think of the stock incentive "wealth building campaign" initiated by Baidu and Alibaba, and the "hyena legend" deduced by HUAWEI ESOP. While reviewing the trauma of equity incentive, we can recall the unrest caused by the cash flow of executives' collective resignation in 2008, and the social discussion triggered by the loss of interest in IPI.

Life and death spy changes in equity incentive

Based on solving the principal-agent problem arising from the separation of ownership and management rights, equity incentive was born in the United States in 1930s.

After that, with the development of human capital theory, equity incentive took root in the US Silicon Valley in 1950s.

By the end of 1990s, 45% of Listed Companies in the United States had implemented equity incentive.

Subsequently, the prestige of equity incentives spread rapidly in America, Europe and Asia, opening up a new era of incentive for high-tech companies.

In China, the idea of equity incentive can be traced back to the "body share system" in Shanxi in the Qing Dynasty. But before 1999, equity incentive has been in the exploratory stage.

In October 1999, Zhou Zhengqing, the then chairman of the China Securities Regulatory Commission, issued a speech on "trial stock option in high-tech listed companies", which officially opened the curtain of equity incentive.

By the end of 2005, in mid October of -2007, China had ushered in a big bull market that was 100 years old. Equity incentives were flourish among listed companies, and millionaires, millionaires and billionaires were mass-produced.

In 2008, the stock market was in a doldrums. The alluring "golden handcuffs" were pformed into nominal gold handcuffs. More than 30 listed companies, including Baosteel, were forced to terminate the equity incentive plan.

In the face of the large scale "abortion" of equity incentive, and the trauma brought by executives' collective resignation cash, strategic investors and the small shareholders of the stock market vent their anger on equity incentive.

For a while, the opinion about equity incentive in China's climate is full of financial media.

Equity is also incentive, and equity incentive is also lost.

For enterprises, if they exclude equity incentives, they will affect the enthusiasm of the core talents of enterprises, and do not meet the needs of long-term development of enterprises. And if equity incentives are implemented, if the operation is improper, it is easy to raise the labor costs, and there will be new problems such as unfair distribution, equity disputes and so on.

Then, how should enterprises choose to face the double-edged sword?

I believe that equity incentive has caused many unexpected adverse effects. The key is that people do not grasp the essence of equity incentive so that equity incentive is degenerated in practice.

On the basis of scientific diagnosis of enterprise development stage and management theme, the "three realms" of equity incentive should be deeply understood.

The first realm: standard salary system

The short life of Chinese enterprises is a lament. According to statistics, the average life expectancy of Chinese enterprises is about 3 years.

The reason why Chinese enterprises can not escape the "two or three years' leading position" is that even though there is a mismatch of business mode and the cruelty of market competition, from the perspective of talent motivation, the short life of Chinese enterprises lies in its lack of long-term incentive mechanism.

After the freshness of entrepreneurship, the rapid struggle for interests instead of hard struggle has become the most difficult problem for enterprises. Under such circumstances, employees' work passion can only be maintained for 1-3 years.

It is not difficult to motivate a team to complete a project. It can be easily settled through high wages, high commission and high bonus.

However, it is very hard to motivate a team to devote themselves to the achievement of a cause, because the incentive effect of short-term incentive tools will decay rapidly over time.

From this point of view, enterprises lacking long-term incentive mechanism are more appropriate to complete a specific project than to run a company.

Therefore, the short life of an enterprise is inevitable.

To solve the problem of talent incentive, the introduction of equity incentive is indispensable.

Especially for high-level talents, the relatively static "short-term" salary factors such as wages, bonuses, royalties and so on are undoubtedly unattractive.

Similarly, along with the idea of "regulating static quantity", it is impossible to solve the currently controversial "executive pay problem".

The more sensible way is to make an essay on the salary structure of core talents and introduce equity incentive in time.

Unlike wages and bonuses, the implementation of equity incentive has realized the effective binding of corporate interests and employees' personal interests. Employees have changed from "passive receiver of remuneration" to "the leader of remuneration".

The harder the individual is, the higher the value of the shareholding is; the more important is that while the employee is pulling up the equity value, it also improves the overall performance of the enterprise.

In the course of the growth of enterprises, the "price difference" equity incentive mechanism is extremely powerful.

As one of the greatest companies in the world, the rise of Microsoft is not due to technology, luck and interpersonal relationships, but because of the huge driving force of stock price option.

One of the main reasons why Alibaba can become the legend of China's Internet lies in its profound understanding and proper use of equity incentives.

Because Ma firmly believes that only the shares are dispersed, "other shareholders and employees will be more confident and energetic".

The second realm: optimizing governance structure

Unlike wages and bonuses, the granting of shares is not only an interest, but also a power.

As the foundation of corporate governance, the change of ownership structure will inevitably lead to adjustment of a series of governance systems such as company control rights arrangement, resource allocation capability and management efficiency, and even lead to the shift of enterprise values.

In the minds of the public, memories of the "civil conflict" caused by the dispute between the two star holding rights disputes and the real Kung Fu holding power struggle are still fresh.

From the perspective of enterprise development stage, in the face of China's vast and boundless consumer market, we can get a good deal if we can manage products well.

In other words, enterprises can survive if they can manage well.

But when the enterprise has a certain scale, it will enter the late or mature stage of its growth, and its focus will shift from "management" to "governance". This requires enterprises to seriously study business models, decision-making mechanisms, employing mechanisms, incentive mechanisms and other matters related to life and death.

Objectively speaking, the influence of equity structure adjustment on stock ownership caused by equity incentive is minimal.

But from the point of view of improving corporate governance efficiency, whether it is for state-owned enterprises to achieve mixed ownership reform or to accomplish "de familial" private enterprises, the positive effects of equity incentives should not be underestimated.

Especially for the "buddy" enterprises with a staid proportion of shares, the minor adjustment of ownership structure can effectively prevent irrational behaviors of some large shareholders, so as to ensure long-term and stable development of the company.

For listed companies and non-listed company in mature stage, the optimization of equity management is mainly to standardize and straighten out the relationship between shareholders' meetings, board of directors and board of supervisors, further constrain the decision-making behavior of management from the formulation of laws and regulations and the construction of company system, and strictly control the key links such as granting, exercising, unlocking, and withdrawing mechanism in incentive, so as to properly solve the problem of "principal agency" between owners and operators, and ultimately achieve consistency between shareholders' behavior and managers' behavior.

For SMEs in the growth stage, because of lack of pertinent laws and regulations for reference, their governance level is not optimistic.

Therefore, equity incentive is not only a kind of "giving profits" behavior, but also should focus on improving the company's authorization system and standardizing the company's decision-making process.

Otherwise, the equity incentive of small and medium-sized enterprises can easily become a welfare without pain or itch.

Third realms: Ignite employee passion

In the United States, the phenomenon of full shareholding is very common, but for Chinese enterprises and employees, equity incentive is a relatively scarce incentive product.

From several cases of equity incentive disputes discussed on the Internet, even though the causes of the events are different, their root cause lies in the unprincipled expansion of the scope of equity incentive granted by the company.

According to the "28 theorem" in management, 20% of the core employees created 80% of the company's wealth.

But from managing master Peter?

From the point of view of Drucker, the potential of knowledge workers is hard to inspire unless they can clearly perceive their "difference".

As the last "golden key" to open the creative gate of knowledge workers, equity incentive must exert itself to become a "scarce product" by giving full play to its magic.

Otherwise, equity incentive can easily become a funnel of the loss of enterprise assets and cause the control right of enterprises to drop off.

The key to building "scarce products" is to carefully consider the incentive qualification of employees, and design an incentive mode that is compatible with the theme of enterprise management and the psychological expectations of employees.

From the confirmation of incentive qualification, it is very important to evaluate human capital value, to measure the degree of difficulty in substitution, to evaluate historical contribution, and to engage in professional review.

Encouragement is the main purpose and incentive is the supplement. This is the fundamental purpose of equity incentive, so the incentive share should be tilted to those employees whose value is high and difficult to replace.

If the performance of employees can be fully presented in a short time, it is not appropriate to implement stock incentive.

In addition, in order to avoid the phenomenon of "resignation cash" and "disguised separation of stolen goods" which are contrary to professional ethics, it is indispensable to examine employees' historical performance and professionalism.

From the point of view of incentive mode design, whether it is for the growth of the "spread price" incentive, or for the mature stage of the "bonus" incentive, the incentive object to obtain the incentive results, the higher the cost, the more obvious the effect of equity incentive.

In the case of high opportunity cost, employees' working attitude will change radically. They will not only increase the value added income of the stock market through the way of lifting their business performance, but also improve the dividend yield of the stock market by means of effective cost saving.

At the same time, as a way and sign to realize its own value, great interest temptation will also stimulate the non equity incentive object to make efforts and raise the value of human capital consciously.

In short, it is necessary to establish a human resource management system based on ability and knowledge distribution, and to realize the capitalization of human resources, and the introduction of equity incentive is indispensable.

But it is worth noting that in view of the dual nature of equity incentive, we need to understand the way of equity incentive to avoid the tragedy of "dispersing wealth and scattered people".