The Study About The Compatibility Between The Equity Incentive And Independent Director In Our Country

At the end of the 20 th century,independent directors were gradually used in company practice.In 2001,the independent director system was formally introduced in the legislation.The independent director system plays an important role in western country's company practice for the perfection of company governance.It strengthens the supervision for management,enhances the rationality and independence of the corporate's decision,and also has great significance for promoting the long-term and scientific development of the company.The main function of independent directors in China is to protect the interests of minority shareholders.However,independent directors have not really functioned under “insider control” in China.ost of the companies have set up independent director system just to meet the regulatory requirements.One of the reason for the defect of independent director system is the imperfect of independent director incentive system.In order to solve this problem,we should have reasonable equity incentive for the independent director.To study the compatibility of independent directors and equity incentive,we should first analyze the meaning of independent director.An independent director is a director who is not in the company except for the directors,and does not have any interest in company which can serious affect the director to make an independent and objective judgement.The independent director system is transplanted from the unified system in American corporate governance structure into the binary system in China.Its main basic theory is principal-agent theory and stakeholder theory.Independence is the most important characteristic of independent director,and all the system design in respect of independent director should meet the requirement of independence.The main reason why academic and legislature oppose independent director's equity incentive is the negative impact on independence.At present,the main problem of the incentive system for independent director is the lack of independence in compensation incentive system and lack of reputation incentive.Equity incentive is an effective method for long-term incentive for enterprise operators and important employees.Its basic theories include principal-agent theory and human resource capital theory.The types of equity incentives include stock options,restricted stock,virtual stocks and deferred payment plans.The equity incentive for independent director began to appear in the United States,the American mode of equity incentive system has developed more mature.It mainly uses stock options and deferred payment plans for independent directors.Therefore,the foreign equity incentive for independent directors has been developed,which can provide valuable experience for our country.The independent director and equity incentive has compatibility in China.The independence of the independent directors should be relative rather than absolute.It is unreasonable to think that independent directors are losing their independence as an object of equity incentive.And it also conforms to the three basic theories:principal-agent theory,stakeholder theory and human resource capital theory.The equity incentive for independent directors is in accordance with the requirements of independent directors to protect the interest of minority shareholders.It also conforms to the balance of incentive and constraints,the matching of risks and benefits.It is feasible to use equity incentive for independent directors under the current legal system in our country.Although the independent directors and equity incentive are compatible,we should regulate the system to ensure the “relative independence” for independent directors which can use equity incentive for independent directors more reasonable.First,the equity incentive of independent directors should be legalized.Second,improve the design of the independent director system to protect the independence of independent directors.For example,increasing the proportion of independent directors in the company,the professional committee must be established in company,adjust the appoint system of independent directors,establish independent organization of third party.Furthermore,analyze the feasibility of independent directors' equity incentive and put some suggestions for key points,including the types,period of validity,shareholding ratio,information disclosure and responsibility.