Study On The Influence Of Equity-based Compensation Plan To Enterprise Finance And Governance

Equity-based compensation plan is based on the performance of enterprise stock price. By acquiring the increase of stock price, the employee could get payment when exercising the share option at lower price than market price, which combine the employee's individual income with enterprise share holder's long-term benefit, diminishing the benefit conflict between owner and management as well as restricting management's short-term behavior and maximizing value of enterprise. It is a profound and effective alternative that solving the Principal-Agent problem.By analyzing the case of INNERMONGOLIA YILI INDUSTRIAL GROUP CO.,LTD(600887), we focus on the accounting recognition and treatment together with the influence to finance and tax, by which we conclude that the enterprise pay attention to the element designing of share option. Since the expense of equity-based compensation plan is based on accrual theory and generates no actual cash flow-out, the financial income statement may be distorted to some extent if the designing of share option plan is not accurate. In addition, since there is difference about expense deductible between tax and accounting, the share option could exert influence to tax payable accordingly. Although a big number of listing company has adopted the equity-based compensation plans as incentive payment to senior management employee and many of them achieve success, there are still complicated problems need to be solved, such as the exercise price setting and timing of exercising. Therefore, we should carefully consider the accounting and tax effect of equity-based compensation plans, at the same time, we provide suggestions in what industry and in what development stage it is appropriate to use equity-based compensation plans.