Commissioned The Study Of China's Securities Companies Under The Equity Incentive In The Agency Relationship Model

Currently, few literatures specialize in the topic of equity incentive plan of securities firms. Most of literatures only treat the topic as a small part of corporate stock incentive mechanism. Other literatures, which do discuss the topic, focus very narrowly on the design of equity incentive plans from technical perspective. While recent financial crisis in the United States has provoked a rethinking on equity incentive plans of investment banks, a new around of fever of introducing equity incentive plans by Chinese securities firms have been waved. Therefore it is necessary to deepen on the topic of equity incentive models for Chinese securities firms based on current literatures.Organized under the principal-agent theory and by combining backgrounds, optimal targets, restricting factors and risk-return analysis, this paper discusses the equity incentive model of Chinese securities firms, analyzes the CITIC case which is the only available case in China and proposes related regulation measures.Although it is still not a proper time to introduce equity incentive plans for Chinese securities firms, developments in some areas are conducive to the introduction of stock-based incentive scheme by securities firms. Considering the three main factors, i.e., shareholder benefits, rewarded-employee benefits and the endeavor made by the rewarded-employee, which affect the optimal target of equity incentive, this paper proposes that the maximum of corporate benefit be the optimal target of Chinese securities firms' equity incentive plan. Under the analysis of risk-return of principal and agent, The paper also concludes that there are still restricting factors in introducing stock-based incentive schemes by Chinese securities firms by analyzing issues of state owner as principal, internal control by agent and lack of agent performance appraisal for principal.Guided by the optimal target and aiming at reducing restricting factors, the paper further discusses the model of equity incentive plans of Chinese securities firms. It seems that stock-option based model fits state-run securities firms better, especially those fallen into so-called Innovation Category labeled by CSRC while the restricted-stock based model fits the private securities firms better. In terms of implementation, it is suggested to adopt multi-element and multi-layer model due to complexity of employees, and adjustable and installment model.As to the optimization of performance appraisal model after introducing equity incentive plans, it is suggested that a combined index be set up as performance appraisal index to make sure the performance meets the incentives and maximize the corporate value. New index like EVA and DEA are suggested to be introduced. Especially the latter is deemed a effective index to appraise the performance made by the awarded-employees. The paper finally proposes a series of measures regarding equity incentive plan for securities firms.