How do unlisted companies make equity incentive plans?

Equity incentive is not the patent of listed companies. For non-listed companies, equity incentive is both feasible and necessary. \ r \ The unlisted Huawei performed a commendable Legend of Hyenas with the tenacity and passion of the employee-owned company generate. However, the retired entrepreneur sued his "old boss" for the issue of equity distribution, which caused the confusion and turmoil of "hyenas", and Huawei was once caught in the "equity storm". Since then, the advantages and disadvantages of equity incentives, especially those of non-listed companies, have become the focus of public debate. \ r \ nSo, what is the significance of equity incentive for non-listed companies? What steps need to be mastered in the operation? What misunderstandings should be avoided? \r\n \ r \ Solve the problem: wealth scatters people, and wealth scatters people \ r \ nIn people's memory, although equity incentive is full of temptation, it is a double-edged sword full of lethality. From the implementation case, the implementation of equity incentive is always accompanied by doubts from enterprises and disputes from society. If the equity incentive is excluded, it will inevitably affect the enthusiasm of the core talents of the enterprise, and it will not meet the needs of the long-term development of the enterprise; However, the implementation of equity incentive, if improperly operated, will easily raise labor costs, resulting in unfair distribution, equity disputes and other new problems. \ r \ Being close to one yuan a year, but getting more than ten million dollars of wealth, this is the mystery brought by the "one-dollar CEO" and one of the key reasons why stock options attract people's attention. The listing of Baidu has created 8 billionaires, 50 multimillionaires and 240 millionaires. As a non-listed company, although it can't share the feast of the capital market, it can still ignite employees' work passion with the help of equity incentives and accelerate the pace of achieving corporate strategic goals. \ r \ The key to the successful implementation of equity incentive is to be able to produce positive effects of gathering wealth and people and avoid the tragedy of gathering wealth and people. To sum up, equity incentive has the following far-reaching significance for enterprises: \ r \ First, it helps to correct the working mentality of employees and improve the cohesion and combat effectiveness of enterprises. From employee to shareholder, from agent to partner, this is the qualitative change of employee's identity, which will inevitably bring about the change of work mentality. I used to work for the boss, but now I am the "small boss" of the enterprise. The change of work mentality will surely make the "small boss" pay more attention to the business situation of the enterprise, and will also try to resist all bad behaviors that harm the interests of the enterprise. \ r \ Second, avoid the short-term behavior of employees and maintain the consistency of enterprise strategy. The survey shows that "insecurity" is the key factor leading to brain drain, and it is this "insecurity" that makes employees' behavior short-term, thus endangering the long-term interests of enterprises. The signing of the equity grant agreement expresses the long-term cooperation between the boss and the employees, and is also the long-term guarantee for the smooth progress of the enterprise strategy. \ r \ Third, attract outstanding talents from the outside and continuously deliver fresh blood to the enterprise. For employees, their value depends not only on the level of fixed salary, but also on the number and value of equity or options they own. In addition, owning equity or options is also a status symbol and an important bargaining chip to meet employees' self-realization needs. Therefore, in order to attract and retain high-level talents, equity incentive is essential. \r\n Fourth, reduce the spot cost and reserve energy for enterprises in winter. The invasion of the financial crisis has made enterprises very cautious about spending every penny in cash. Although employees are the "most precious wealth" of enterprises, in the financial crisis, enterprises that are short of money also realize that employees are a bit "too expensive to use". As a partial replacement of fixed salary payment, equity incentive can achieve a win-win situation for enterprises and employees to a great extent. \ r \ nIn short, as a long-term incentive tool, the lasting passion of generate Stock Exchange is unmatched by short-term incentive tools such as salary, commission and bonus. In view of this, equity incentive is sought after and favored by more and more non-listed companies. \r\n \ r \ Operation: There are both "Dao" and "Shu" in wealth distribution \ r \ nFor major shareholders, equity incentive is an act of wealth distribution. People who are well dispersed and whose wealth is scattered gather together; If you don't disperse well, the money will disperse. Compared with listed companies, there are no relevant laws and regulations on equity incentive of non-listed companies, so its complexity and difficulty can be seen. Below, the author takes a company that has done equity incentive scheme for it as an example to explain the "Tao" and "technique" of equity incentive for non-listed companies. \ r \ nCase background: Suffering from brain drain, S company is eager for equity incentive \r\n S company is a large independent research and development enterprise in Beijing. In recent years, the market has been excellent, and the company has turned into a high growth period. However, what worries the major shareholders is that the morale of team work begins to show signs of decline, and the turnover rate of senior talents is on the rise. In order to reverse the working mentality of employees and retain core employees, the company tried to implement the equity incentive plan. \ r \ When talking about the idea of equity incentive, S Company expressed the following expectations: First, reasonably determine the number of equity grants for each employee to avoid unfair distribution; The second is to reasonably determine the stock price to ensure that the incentive object can share the company's operating results according to the actual contribution of the individual; Third, determine the incentive mode suitable for the company, which is simple to operate and has incentive effect; Fourth, reasonably determining the incentive period will not make employees feel out of reach, but also avoid the short-term behavior of some employees. \ r \ nIn addition, Company S also expressed some concerns, for example, under the current economic crisis, is it appropriate to implement equity incentive? What if employees don't work hard after the equity grant? How to settle the equity income when employees leave their jobs halfway? What if employees are not interested in equity? \r\n \ r \ Solution: On the basis of systematic diagnosis, encourage at different levels and push forward step by step \ r \ nAfter due diligence, the author's team found that S Company currently adopts the salary incentive method of "patting the head", which has no scientific basis, the incentive mechanism lacks fairness and competitiveness, and there is no long-term retention means. This is the main reason for low morale and brain drain. In order to solve this problem from the root, we have deeply analyzed the governance structure, development stage, strategic planning, corporate culture, salary structure and assessment methods of S company, and on this basis, we have formulated a systematic equity incentive scheme. The key points are as follows: \ r \ The first step is to determine the scope of incentive object from three aspects: added value of human capital, historical contribution and irreplaceable degree. \ r \ Although full shareholding is very popular in the United States, it is not applicable in China, especially for unlisted companies in China. To some extent, unprincipled expansion of the scope of incentive objects is the root of equity disputes. Therefore, the confirmation of incentive qualification should be investigated from three aspects: added value of human capital, historical contribution and irreplaceable degree. \ r \ From the perspective of added value of human capital, the incentive object should be able to have a significant impact on the company's future sustainable development. After all, focusing on the future is the foundation of equity incentive. From the perspective of historical contribution, the incentive object should have made outstanding contributions to the company's past business performance growth or management ability improvement, because respecting historical contribution is the basis for avoiding internal disputes. From an irreplaceable point of view, the incentive object should include special human capital holders who master core business secrets and proprietary technology. Paying attention to the irreplaceable degree is the realistic need to protect the business secrets of enterprises. \ r \ According to the above principles, we divide the incentive object of S company into three levels: the first level is the core level, which is the strategic decision-maker of the company, accounting for about1%-3% of the total number of employees; The second layer is the management, which is the manager who holds the position of department manager or above, accounting for about10% of the total number of employees; The third level is the backbone layer, which is a special holder of human capital, accounting for about 15% of the total number of employees. \ r \ Step 2: Evaluate the value of human capital, and comprehensively determine the incentive strength in combination with the realization of company performance and personal performance. \ r \ Motive or its location? This is a controversial topic. The author believes that to solve the problem of "for people or for jobs", it is necessary to rise to the development stage of enterprises and the management themes they face. \ r \ For a growing enterprise, its business model is not yet fixed, and part-time jobs and job rotation are very common, so it is difficult to define the job content of employees with a solidified job description. In this case, the post value should not be the basis for determining the strength of equity incentives. For mature enterprises, their business model tends to be solidified, and the ability of employees depends largely on their positions. "Unity, standardization and order" has become the management theme of enterprises. At this time, it is very important to carry out evaluation based on post value for determining the strength of equity incentive. In view of the fact that S Company is still in the growth stage, we determine the initial motivation of employees based on the evaluation of human capital value. Combined with the actual situation of S company, when evaluating the value of human capital, the influence, creativity, experience, historical contribution, development potential and adaptability of the incentive object are mainly considered. \ r \ nIt is worth mentioning that it is inappropriate to solidify the incentive amount, no matter for people or posts. To this end, we introduce the equity incentive assessment mechanism, which divides the assessment into three levels: company performance, department performance (or project performance) and personal performance. For employees with higher levels, strengthen the assessment of the company's performance; For employees with a slightly lower level, strengthen the assessment of personal performance. According to the assessment results, it is divided into five grades: S, A, B, C and D, and the final reward amount is determined according to the assessment grades, which are 1.2 times, 1. 1 .0 times, 0.8 times and 0 times in turn. \ r \ Step 3, determine the incentive mode according to the incentive level. \ r \ The incentive effect depends not only on the total amount of incentives, but also on the incentive methods. To determine the incentive mode, we should comprehensively consider the added value of employees' human capital, engagement and employees' willingness to invest. Combined with the actual situation of S company, the corresponding incentive methods are as follows: \ r \ For employees with high added value and high loyalty, real stock incentives are adopted to make employees feel masters of their own affairs. Referring to the relevant regulations on equity incentive of listed companies (the proportion of equity used for equity incentive shall not exceed 65,438+00% of the total share capital), combined with the equity structure of S company and the expected business growth during the incentive period, we suggest that the number of equity used for physical equity incentive shall be 5 million shares (about 5% of the total share capital of the company). The individual grant amount is determined according to the value of human capital, that is, the individual grant amount = 5 million shares × individual human capital value/∑ individual human capital value. \ r \ For employees who are unwilling to contribute, dividend incentive and option incentive shall be adopted to improve the enthusiasm of employees to participate in equity incentive. The number of dividend rights depends on the human capital value of the incentive object and the dividend per share during the incentive period, that is, the number of dividend rights granted to individuals = personal human capital value/dividend per share. The amount of options granted depends on the value of human capital and the growth of stock price during the incentive period, that is, the amount of options granted to individuals = individual human capital value/earnings per share difference. \ r \ The fourth step is to determine the stock price growth mechanism according to the enterprise strategy. \ r \ None of the important reasons why equity incentive can arouse employees' enthusiasm is that the incentive object can influence the size and realization probability of the incentive result through his own efforts. Choosing the right incentive object can achieve a win-win situation for both enterprises and employees. \ r \ nThe following four factors should be comprehensively considered when determining the incentive target: First, the incentive target must be consistent with the company's value growth; Second, the evaluation of the value of the incentive object should be clear and convincing; Thirdly, the value of incentive objects should be influenced by employees' own efforts; Fourth, it is very important for non-listed companies not to disclose the financial secrets of the company when publicly encouraging the target. \ r \ According to the above criteria, combined with the development stage and financial management status of S company, we choose the growth index of sales as the target of stock price changes. Considering that the growth rate of sales does not correspond to the growth rate of net profit or net assets, combined with the historical financial data of S company, we set the growth rate of stock price as 60% of the growth rate of sales (which can be appropriately adjusted by the board of directors according to the actual operating conditions of the current period). For example, if the target annual sales growth rate is 50% relative to the base period sales, the stock price growth rate is 30%. \ r \ Step 5: Determine the incentive period according to the strategic planning period of the enterprise, the psychological expectation of employees and the nature of work. \ r \ nIn order to produce long-term incentive effect, equity incentive must be promoted in stages to ensure the continuity of employees' work passion. The division of incentive period can be determined by referring to the strategic planning period of the enterprise, the psychological expectation of employees and the nature of work. \ r \ nOn the one hand, as an incentive tool to support the realization of enterprise strategy, the duration of equity incentive should match the strategic planning period of the enterprise. On the other hand, equity incentive aims to win the loyalty of employees by relieving their worries. Too long incentive period will weaken the incentive effect and can't mobilize employees' desire to participate, but too short incentive period will also make some employees have speculative ideas. Finally, the reason why enterprises adopt equity incentive is because the work results of some positions cannot be presented in a short time, so the cycle setting of equity incentive should also consider the work nature of the incentive object. \ r \ According to the actual situation of S company, we set the grant period of equity incentive as 3 years, which will be completed in three times each year according to the ratio of 3: 3: 4. The unlocking of equity and the redemption of options will also be implemented in three years in the same period, so the completion of such an equity incentive plan will last for 6 years. The reason why it is set as a circular mechanism is that employees will feel a little sorry if they want to leave the enterprise at any time in the middle, so as to increase their turnover costs and strengthen the effectiveness of long-term retention. \ r \ Step 6: Sign the reward agreement, refine the withdrawal mechanism and avoid legal disputes. \ r \ n \ r \ nIn order to avoid legal disputes, the withdrawal mechanism should be clearly defined in advance before implementing the equity incentive plan. Referring to the Labor Contract Law and combining with the working characteristics of R&D enterprises, S company can define the exit mode from three aspects: \ r \ First, for normal resignation situations such as contract expiration and legal retirement, the realized incentive results belong to the incentive object, and the unrealized part is recovered by the enterprise. If the incentive object will affect the business performance of the enterprise to a certain extent after leaving the enterprise, it can also keep the unrealized part to encourage it to continue to pay attention to the development of the company. \ r \ Secondly, in the case of abnormal exit such as resignation and dismissal, the realized part can be appropriately discounted except the unrealized part. \ r \ Third, in the case of attendance but no contribution, the withdrawal method stipulates that if the incentive object fails to pass the examination twice in a row, the incentive qualification will be automatically cancelled, that is, the default incentive object is not the human capital needed by the company, and of course it is not eligible for human capital benefits. \ r \ After the equity incentive scheme is determined, it is an essential link to sign an equity grant agreement with the incentive object. This is a sign of the formal implementation of equity incentives, and it is also a clear definition of the rights and obligations of both parties.