A Study On The Equity Incentive Plan Design Of Listed Company

In April,2005, the listed companies in China started their reforms of non-tradable shares. Along with a variety of supporting laws and regulations gradually improved, many of China’s listed companies presented their equity incentive plans. However the implementation of equity incentive is different, some of the equity incentive plans have been proved to promote the enterprise development, while others are not due to their negative effect. In fact, these plans have been transformed into part of the staff welfare machine, or have been a control tool of the management to seize their own benefits. In addition, we also found that many of the equity incentive plans failed to obtain the implementation, the general implementation rate is only50%. Therefore, it is very meaningful for the author to do further research on the equity incentive plan to find out the optimal measures.In this paper, the author firstly made a statistics on the existing equity incentive plans and analyzed their main elements in their plans in order to find out the universal problems. The author thinks the plans are not designed reasonably enough because it didn’t fully match with the Chinese special policy environment, corporate governance environment, capital market background, specially the incentive level and the exercise price are set in a wrong level due to the lack of scientific design. As a result, many of incentive scheme failed to be carried out. Basing on the sample companies and their data from the implementation of equity incentive plans from2006to2010, an empirical analysis was able to be made in order to optimize the incentive level and exercise price, the conclusions are as follows:1. incentive level is significantly positive-correlated with the nature of enterprise and its sales risk, and significantly negative-correlated with the ownership concentration and ownership balance degree, in addition subjected to net cash flows, business income, the scale of enterprise, return of equity.2. the reasonability of exercise price is connected with time interval between the date of equity incentive plan presentation and the date of its implementation, also connected with stock index.Based on the above research conclusions, this paper put forward the incentive level determination should be made according to the full impact of the above-mentioned factors; the measures of exercise price optimization includes shortening the time interval between the equity incentive plan implementation date and plan announcement date, and letting the exercise price flexible with index adjustment; In addition, optimizing the equity incentive plan design also depends on the improvement of external environment, such as raising the remuneration committee independence, perfecting manager (CEO) market and improving the efficiency of capital market.