The Analysis On Equity Incentive Of Small And Medium-sized Private Enterprises

In terms of the current management system of private enterprises, a significant problem in development is to acquire and utilize human resources. For small and medium-sized private enterprises (SMEs), the scarcity of talent has become the key factor restricting their development. The equity incentive of small and medium-sized private enterprises refers to a long-term motivational mechanism that distributes the earnings of the enterprise in terms of the equity ownership, which strengthens the enthusiasm of the key employees and enables the enterprise to achieve more earnings. This paper chooses the equity incentive of small and medium-sized private enterprises as research object, and explores its insights by analyzing the current situation of SMEs’ development, as well as the fundamentals in the equity incentive theory, which meanwhile leads to a long-term and pertinent feature of the equity incentive of SMEs. Based on an analysis on its internal mechanism, the paper evaluates the effect of the equity incentive of SMEs on business operators and also the enterprise itself. The objective and significance of the execution of the equity incentive on SMEs is concluded according to a thorough investigation on the features of SMEs in different period of development, the suitability of the equity incentive, and the SWOT and other nine mode analysis on the implementation of the equity incentive. The benefits from its execution are concluded as well in the end.The innovation in this paper lies in the investigations and data collections which conclude that the shortage of talents is the key constrain to the competitiveness of SMEs in our nation. One of the main reasons for talent shortage is the lack of capability to retain the excellent employees, with a regular talent drain as a result. A significantly negative impact of the talent drain can therefore be partially reflected on the development of SMEs. SMEs consequently favor to consider more on retaining the talent and employees’ development when setting their business objectives, in which case the equity incentive is always a better solution. Equity ownership binds the key employees and the enterprise with the same interests. A better performance of the key employees-> a faster growth of specific financial indices-> a larger gap between the option market price and the exercise strike-> more profits-> a better incentive. Since the equity incentive guarantees the key employees a long-term profit, it enables the enterprise to retain the talent for a long period, remain the sustainability of development, and motivate the employees to further improve the company’s performance.With a discussion on the internal and external conditions for the equity incentive of SMEs in our nation, the last part of the paper provides a strategy of solutions to the problems during the implementation of equity incentives in private enterprises. Combining the literature review and investigation, the paper starts with a general introduction on the theory of enterprise equity incentive, and digs into the existing problems with current situation of equity incentive of SMEs in the nation. The paper then elaborates the long-term motivational effect of the equity incentive mechanism with multiple case studies, and at last proposes a strategy to improve the system of equity incentive of SMEs in our nation based on a series of solutions to internal and external problems along with its implementations.