A Comparative Study On The Equity Incentive Model Of Listed Companies

As a new pattern of compensation mechanism, equity incentive compensation is intended to reduce agency costs between shareholders and managers and to improve performance by granting managers with firm stakes. Equity incentive compensation was widely used among Western corporations early in the1980s and soon promoted all over the world. In December2005, Chinese SEC published rules and regulations to guide the practice of stock incentive compensation in listed companies, which marked an entrance to standardized development phase. With the improvement of relevant supporting policies, the scheme has been adopted by many companies and meanwhile stock options and restricted stocks are the most commonly used modes. Then whether stock incentive compensation can effectively lower agent cost becomes a key issue.Beginning with the perspective of different incentive type, this paper summarized the differences between stock option and restricted stocks. Observing the performances of listed companies that launched equity incentive plan during2006and2011, we see a positive correlation between company performances and extend of equity incentive plan. Furthermore, restricted stocks show better effect than stock options given an equivalent incentive extend. What’s more, non-state-owned corporations perform better than state-owned ones especially under restricted mode. In a word, the conclusion in this paper may have some insight in further improving Stock Incentive Compensation mechanism in China.