The Case Study On The Equity Incentive Of Company A

Since the lifting of restrictions in the new company law in 2006,equity incentive plans of listed companies have developed rapidly in China,and the number of listed companies using equity incentive has increased year by year.However,on the basis of insufficient understanding and investigation of the internal and external environment,many enterprises blindly apply the equity incentive scheme that is not suitable for the development of the company,which finally turns into a kind of welfare or performance pressure,resulting in unsatisfactory implementation effect.At the same time,in the implementation process of many companies' equity incentive plans,due to the imperfect scheme design,many managers use earnings management methods to achieve the assessment requirements.This paper mainly analyzes the design of the scheme and effect of equity incentive of listed companies.Firstly,this paper summarizes the literature review on equity incentive schemes,then analyzes the theoretical basis of equity incentive schemes,and summarizes five reference conditions for setting up equity incentive schemes.This paper selects the equity incentive plan published by A company,a leading enterprise in China's construction machinery industry,in 2013 and announced to be cancelled in 2014,as well as the equity incentive plan published in 2017 and issued for the first time in 2018 as the case study.The study found that,as an enterprise in a strongly cyclical industry,the A company did not fully consider the impact of macroeconomic development on the industry when designing the first equity incentive scheme,ignore the signals that the market and the performance of the industry have released,and improperly set the assessment index,leading to the failure of the equity incentive this time.The second equity incentive scheme is also unreasonable because of the unreasonable set of performance conditions assessment indicators.Only net profit indicators pointing to the final results are selected as a single performance indicator,which makes the managers achieve the assessment requirements in the first assessment year with the help of industry recovery and earnings management effect.This paper analyses the operation of two equity incentive schemes and management behavior of Company A,and then puts forward optimization suggestions for its equity incentive scheme design.For listed companies.First of all,before designing the equity incentive scheme,we should set reasonable business objectives according to the industry development situation,and when designing the elements of equity incentive contract,we should select the elements of the contract according to the company's business objectives.Secondly,when designing the equity incentive scheme,we can extend the incentive period and adjust the exercise interval to improve the frequency of granting and exercising power to give full play to the incentive role.Finally,we should fully recognize the two roles of equity incentive contract elements.We should not only consider the target performance,but also limit the possible earnings management behavior of managers by improving the design of contract elements.Market regulators can create a good market and regulatory environment for listed companies to implement equity incentives by focusing on major issues before and after equity incentives and estimating the floating exercise price system under the depressed share price.