The Selection Of The Model And The Effects Of ZTE’s Equity Incentive

Theory of modern enterprise and the practice of western capital markets have proved that equity incentive can solve the principal-agent problem. It can effectively incent employees, as a result, the employees, as well as managers and owners may have the same interests. In this case, employees can serve the enterprise better, which brings a long-term and continuous development for the enterprise. Exploration and practice of equity incentive system in our country is gradually mature with the improvement of laws and regulations. With the development of Chinese GEM, "three new board", the introduction of equity incentive presents ascendant trend. More and more companies started to accept, learn and implement the equity incentive plan. Therefore, how to develop equity incentive program and select equity incentive model remain a problem for the long-term development of enterprises.ZTE is the largest communications equipment company of China as well as a global integrated communications manufacturing leader supplier. Their equity incentives have been implemented in 2006 and 2013.These two models are different. One is incentive strict-ed stock model and the other is stock options model. These two equity incentives aroused great concern and discussion. We found that ZTE chose different models according to the enterprise life cycle theory. We evaluate ZTE equity incentive program from four aspects: long-term business performance, stock price fluctuations in the short-term effect, staff structure and the innovative ability. The result is that both equity incentives have created a more positive effects, but the impact of the first one is short-term and long-term lack. After comparing these two equity incentive programs of ZTE, it was found resulted from the unreasonable choice of some elements of the equity incentive. However, the choice of the model of equity incentive is appropriate. At last, the article concluded that growing companies should use stock option incentive model while mature business should use restricted stock model. All enterprises should pay attention to the elements of equity incentive programs.