State Enterprises, Incentive And Restraint Mechanisms Building Case Study

In a profit-oriented economic organization like an enterprise, human resource is inevitable. Among various human resources, managers play an important role for the management and development of the enterprise. In the cases that capital owners and professional managers are separated, decisions and operative activities of the managers decide the owners' interest. Therefore, capital owners must solve three important problems to ensure maximal profit: first, managers must have enough motivation and enthusiasm in business operation and decision making management; second, managers must be fully qualified and capable to maximize the enterprise's value; third, managers cannot abuse their power to pursue personal benefit at the cost of enterprise owners' interest. To establish effective invigorative and restrictive system for enterprise managers is one of the important systems that ensure solution of the three problems.In the economic construction of our country, especially in the course of establishing socialist market economy, state owned enterprises play the decisive role. The construction of SOEs' management and full play of managers' talent will decide constant stable development of SOEs and maintain and increase the state owned capital. Due to the special arrangement of property right in SOEs in China, many levels of consignment and deputy are formed. In this case of 'no owner' and 'internal control', it is ultimately meaningful to establish effective invigorative and restrictive system in state owned enterprises.This article primarily analyzes the meaning of establishing invigorative and restrictive system for enterprise managers in state owned enterprises. It introduces and analyzes the explorations and practice of SOEs and the author's enterprise group, and reflects existing problems. Chapter No.1 starts with the analysis of enterprise inbeing. It discusses the problems to be solved in an enterprise and the necessity to establish invigorative and restrictive system for managers under the condition that operative right and property are separated. Due to the long period of plan economy in our country, the characteristics of SOEs result in investor absence and 'internal control', which creates possibility for state owned capital to be seriously corrupted; 'property deformity' of SOEs causes over high 'agent cost'. The pursue of maximal welfare results in serious uncertainty of reward from state owned capital. The article also discusses the special meaning of establishing effective invigorative and restrictive system..In Chapter No.2, the author analyzes the plan economy system. Since there was no professional entrepreneur and no effective invigorative and restrictive system for managers in our country, the enterprise managers had no respect or achievement and made no effort due to no 'self', enterprise short term behavior and '59-year old' phenomena appeared in large scale, state owned capital was lost in either perceptible or imperceptible ways. The author introduces the SOE's stipend system in the process transferring to market economy. Emphasis is put on the basic content and relevant background of the 'annual stipend system', 'operator-holding shares', 'stock option' that are being popularized, and on the main problems encountered in the executionChapter No.3 introduces the development and the management team of the author's enterprise group. It introduces the attempt, achievement and existing problems in establishing effective invigorative and restrictive system for managers during the past years.Chapter No.4 analyzes the obstacles in establishing effective invigorative and restrictive system for managers and makes suggestions for improving SOEs and the enterprise the author is serving in view of outer environment factors such as share structure, juristic obstacle and social agency and internal restrictive factors such as company management structure, achievement assessment and human resource system.