Corporate Governance and Equity Incentive

Equity incentive is an incentive way to serve the long-term development of the company diligently and responsibly by obtaining the equity of the company and giving the business operators certain economic rights, so that they can participate in enterprise decision-making, share profits and take risks as shareholders. Equity incentive is different from other corporate governance models, and it no longer uses the model of granting and depriving rights, supervision and checks and balances. On the surface, equity incentive is a kind of reward for managers by shareholders, an exercise of options and the acquisition of extra property, but in essence it changes managers from pure agents to shareholders in a special sense. This special sense of "shareholder" holding shares or other property rights holding shares is very different from that of investors in the secondary market, which can be explained from two aspects: (1) Equity incentive is often a choice of operators, and whether shareholders implement the equity incentive plan will often set certain business objectives for operators as exercise conditions, which has strict restrictions on the duration and quantity, which is very different from that of investors in the secondary market. (2) Stock options often have restrictions on the time and quantity of transfer, which can be expressed in the Company Law or the articles of association, while investors in the secondary market do not have such restrictions in buying and selling stocks, which is entirely a desirable behavior of buyers and sellers. As a rational economic man, no one wants his property to depreciate or be devalued. Shareholders closely "kidnap" the operators and the company's operating performance and performance through equity incentives, so as to achieve the effect of sharing weal and woe, advancing together and retreating together, which is undoubtedly a good way to reduce the moral hazard of operators, reduce agency costs and maximize shareholders' interests.

There are various forms of equity incentive, including stock options, performance stocks, fictitious stocks, stock appreciation rights, restricted stocks, deferred payment, employee stock ownership, etc. Among them, stock options and restricted stocks are the most widely used, and other forms of equity incentive plans are roughly variants of these two forms. The following also focuses on these two incentives. (1) Stock option refers to the right given to the management by the shareholders' meeting to buy a certain number of company shares within a certain period of time. Whether this right can be realized depends on whether the management can achieve the business objectives set by shareholders. Before exercising, the management who has been granted stock options does not enjoy property rights; The income obtained after the exercise is the difference between the exercise price and the market price on the exercise date. (2) Restricted stock refers to allowing the operator to obtain a certain number of shares of the company for free at a lower price or under predetermined conditions through the resolution of the shareholders' meeting, and the restricted stock incentive plan needs to include certain performance conditions. On the premise of achieving the set performance target, the incentive object needs to buy the granted shares. If the predetermined conditions are not met, the restricted stock incentive plan will naturally terminate. The sale of restricted shares usually has strict time and conditions. Take the United States, where equity incentives are the most developed, as an example, the restrictions on the management's profit from selling restricted stocks are very strict. If the company continues to reach a certain level of profitability, or the management holds it for a certain number of years or even retires, it can only sell such stocks.

From the legal point of view, stock options and restricted stock grant agreements are actually a conditional and time-limited sale or gift contract between management and shareholders, which can be free or paid. Although stock options and restricted stocks are both ways of equity incentives, there are significant differences between them, mainly in the following aspects: (1) stock options can only be exercised under certain conditions, and they get restricted stocks, which are some stocks granted by the company to the management under certain conditions, but the holders can only sell arbitrage under certain conditions such as performance and working years. (2) Stock option holders can choose to exercise or not to exercise their rights, which is a right of formation from the legal point of view. This right of formation is fixed for a certain period of time, and it will disappear after the prescribed exercise period. When the stock market price is lower than the exercise price, the stock option holder can completely choose not to exercise the right; However, the restricted stock is awarded to the incentive object at a price lower than the current market price. If the future market price of a stock is lower than the current price, the holder cannot arbitrage from it. Therefore, the management is diligent and responsible for the company because of its own advantages and disadvantages, thus achieving excellent business performance. At present, whether the implementation of incentive strategy can improve the company's operating performance is still inconclusive. On the contrary, some scholars believe that the implementation of incentive strategy is the performance of inefficient shareholder supervision, and strong compensation plan is not always a rational choice in corporate governance. Some scholars have found that there is a significant positive correlation between the performance of listed companies and equity incentives through economic modeling research. Jingbang's understanding is that all kinds of corporate governance means, including the incentive strategy of equity incentive, should be tailored when adopted. At the same time, the incentive strategy is only one of the means of corporate governance, and it cannot replace the selection and supervision strategy. The comprehensive application of various means can often achieve better results. However, it is undeniable that incentive measures such as equity incentive play a positive role in reducing the moral hazard and agency cost of agents, attracting and retaining talents, solving insider control, and fully devoting themselves to the company's operation and shareholders' interests.

Judging from the practice of all countries in the world and the provisions of the Company Law, equity incentive as a means of corporate governance has been basically affirmed. American law authorizes companies to issue stock options, shadow stocks and other forms of incentive compensation; The original incentive pay in Germany is strictly restricted by tax law and company law, but this situation has also changed to some extent. For example, the German company law allows companies to buy back 65,438+00% of the issued shares for the stock option plan. Of course, "Enron incident" once made many western companies give up the incentive measure of equity incentive, while in China, the sky-high salary of management caused by the implementation of stock option plan also emerged one after another. In this regard, any system has a process from imperfect to perfect, but it cannot be denied that the equity incentive plan plays a role in reducing agency costs and giving full play to the enthusiasm of talents.