A Case Study Of Suning Global Equity Incentives

The principal-agent issue that arises in the context of enterprises has consistently been a problem in business operations.Thus,a particularly important question that arises in corporate governance is how to reduce costs associated with the principal-agent relationship.Equity incentives have attracted the attention of international and domestic scholars.Research on equity incentives is of significantly important to the operation of enterprises.Adopting a reasonable equity incentive program can not only properly generate staff enthusiasm,but also stimulates their creative ability thereby contributing towards the long-term development of the company.Most of the traditional equity incentive models are designed along the structure of performance-based contracts.However,listed companies are placing more focusing on the aspect of market value management.The company's market value performance is increasingly being taken into consideration in its scope of the assessment.Suning Universal,a real estate company in China,was the first company to launch this mechanism whereby the stock price was bound to conditions of the equity incentive program.Through this mechanism,equity incentives were directly linked to performance and gains in share prices.The unique design of contracts for equity incentives and its incentive effect on the development of listed companies in China is an important issue in corporate governance.This paper seeks to discuss the management of listed companies seeking to encourage meeting conditions of the equity incentive programs and the market value of the new initiatives explained in the study.Research for this article was conducted by reviewing domestic and foreign literature on equity incentives and employee holdings.The study was based on the theory of equity incentive and ownership of employee stock within the context of China's national conditions.The paper also analyses the impact of employee holding plans on the financial and the market value of Suning Universal in the context of factors such as incentives,incentive objectives and relevant financial indicators.This article is divided into six sections.The first section presents an introduction into the issue by describing the background and significance of the paper.This section also presents the research framework and methodology adopted for this paper,and summarises the relevant literature on equity incentives and employee shareholding plans.The second section presents an analysis of the equity incentive theory in China by summarising the contractual elements of equity incentive;discussing the equity incentive plan model;and illustrating the theoretical basis for equity incentives.The third section describes the institutional background and analyses the current situation relating to equity incentive programs adopted in China.Reform of stock market in 2005 leading to full stock circulation empowered the market to set stock prices.The executive incentive theory provides a mechanism to address the agency problem between investors and managers.Additionally,it also analyses the current situation of domestic equity incentives and related performance and discusses features of the equity incentive models,source of funds and the period for meeting conditions to unlock incentives.This section further analyses the current situation and performance of equity incentives adopted by listed companies in China.In this context,the paper discusses the distribution of equity incentive industries in China,the equity incentive models adopted,the source of funds and the period for meeting conditions to unlock equity incentive models.The fourth section is a case study on equity incentives adopted by Suning Global.This part presents a profile of Suning Global and discusses the company's development and implementation of two equity incentive plans.The fifth section assesses the implementation of the employee stock ownership plan by analysing the Sunning Global's profitability,operational capacity,solvency and capacity for growth.The analysis reveals that while the company's short-term solvency has greatly improved,its long-term solvency has been weakened.However,the company's capacity for growth is stable.The sixth section draws a conclusion to the overall discussion in the paper.According to Suning Global's financial data and share price,the employee shareholding plan has a positive effect on the company's performance and share price in the short term.It is,however,difficult to maintain long-term benefits through this mechanism.There is also a positive impact on the transformation of the company,which is not evident at the start due to the process followed in the initial stages of the transformation process.Based on the analysis drawn from the case study,the paper concludes that the exercise conditions adopted should be in line with the industrial conditions,country policies and corporate strategies which,in turn,coincides with the equity incentive plan implemented to improve the corporate structure.