The Implementation Effect Of Equity Incentive Of Information Technology Enterprises With Revenue As Performance Indicator

In recent years,more and more information technology enterprises have begun to choose revenue as the single performance indicator when implementing equity incentive.Based on the empirical test and case study,this paper examines the implementation effect of the equity incentive of those information technology enterprises with revenue as performance indicator.Then,this paper analyzes the reasons behind based on the case,so as to gain experience and provide suggestions for relevant enterprises when implementing equity incentive.Through the empirical test of information technology enterprises from the year of 2017 to 2020,this paper draws the conclusion that equity incentive with revenue as performance indicator can significantly promote companies’ innovation investment,but it has no significant effect on improving the performance of enterprises.Combining with the typical case company DAS-Security,this paper then examines the implementation effect of its equity incentive with revenue as performance indicator,and draws the conclusion that its equity incentive has obviously promoted company’s innovation input and output,but it has no obvious promotion effect on company’s performance,in fact,the profitability has even declined.This is mainly because the equity incentive with revenue as performance indicator makes the company focus on R&D innovation and market expansion rather than short-term profits,thus largely increasing company’s R&D investment and market investment.However,since the commercialization of new technologies takes time and the industry growth slows down in recent years,the revenue has not achieved corresponding growth.Based on the case,this paper also gains the following experience: Firstly,the selection of performance indicators of equity incentive should adapt to the company’s life cycle and industry development.When the firm is in the growth stage,the growth ability rather than short-term profit is the focus,so the company needs to gain the competitive advantage by increasing investment in R&D and market expansion,in this case,revenue can be selected as the performance indicator.When the enterprise is in the mature stage,operating efficiency and profitability are the key points of development,so profit can be selected as the performance indicator.In addition,when the industry is in the stage of market expansion or the profit-declining period,companies can also choose revenue as the performance indicator.Secondly,the objects of equity incentive of information technology enterprises using revenue as performance indicator should include the core technicians,as well as salesmen playing a key role in market development.Thirdly,as for the mechanism,equity incentive with revenue as performance indicator mainly improves the revenue of enterprises by promoting the innovation output and the ability of transforming innovation output into revenue.However,the promotion effect of equity incentive on the transformation of innovation output into revenue can be affected by the new technology cycle and the market environment.In the embryonic stage of new technology,the incentive effect of equity incentive may be delayed.Also,when the overall market demand slows down,the promotion effect of equity incentives on revenue improvement may be limited.Fourthly,pay attention to the impact of high equity incentive fees on the profitability of the company.This paper also finds some issues of the equity incentive of DAS-Security,including the objectivity and comprehensiveness of its performance evaluation should be improved,the company’s lack of attention on operating efficiency due to the single performance indicator of revenue,the instability of executives due to the non-executive equity incentive,as well as the large cost and high grant price due to the launching of equity incentive when the stock price is high.In this regard,this paper puts forward some suggestions: considering relative performance evaluation and non-financial indicators,improving cost control,considering executive equity incentives,launching equity incentives at low stock prices and appropriately reducing the grant price.Based on the above analysis,the paper then gives suggestions for the information technology enterprises and regulators.As for information technology enterprises,revenue can be selected as performance indicator when the company is in the growth stage,and the relative performance evaluation and non-financial indicators can be considered to improve the performance evaluation system.When choosing incentive objects,companies can mainly focus on core technicians,as well as salesmen during the market expansion.In addition,the equity incentive can be launched when the stock price is low and appropriate grant price needs to be set to ensure the effectiveness and cost benefit of the equity incentive.As for regulators,they can further promote the improvement of the pricing system of the capital market,and take the adaptability to the enterprise life cycle and industry development as an important principle to evaluate the performance evaluation of equity incentive.