It is true that as mentioned in the previous article, equity incentives are not absolutely good or bad, more is the need to combine the company's own development needs, in the actual work according to the company's industry prospects, development plans, time and place according to the people to develop their own incentive plan is the best, so equity incentives are not suitable for every company. So today we will mainly talk about the advantages and disadvantages of equity incentives.
1. Attract talents. As stated in The Masnor's hierarchy of needs, once each level of need is met, it is difficult for that level of demand to play a stimulating role. So for the incentivized object, after its survival needs, security needs, and emotional needs have been met, then being respected can become a new motivating factor. The reason why equity incentives can play a better incentive role than cash incentives is precisely because they enable the incentivized objects to achieve the transformation of passive payment to active investment mentality, synchronizing the development of the company with personal destiny, so we often say that equity incentives are golden handcuffs, attracting talents externally and retaining talents internally.
2, reduce costs. Compared with cash incentives, equity incentives, equity incentives such as stock options, restricted stocks/equity, employee stock ownership plans, and performance stocks are generally not required to pay large amounts of cash incentives, which can effectively alleviate the cash flow tension of some companies, and some incentive forms can raise certain funds for the company; there are three types of incentives based on cash incentives: virtual stocks, dividend rights, and stock appreciation rights. When paying cash, it is based on the company's additional profit share after completing a certain performance goal or profit target, so it will not increase the company's cash payment pressure, and only after the company obtains a higher amount of profit can the above cash incentive conditions be started, which is essentially a win-win method.
3. Comb the structure. In the initial stage of the company, the company's shareholders often have a vague understanding of the equity structure, and the understanding of the structure is still only in the holding stage, but the way and purpose of the holding are not clear. Once the equity incentive is implemented, the shareholders of the company will inevitably need to deal with the source of the shares (votes/rights) in the equity incentive. Because of this, the company's shareholders have to consider what arrangements to be made for the future equity structure of the company in the process of incentives, such as the unary holding structure, the limited partnership shareholding structure, the multi-level holding company shareholding structure, and the mixed multi-level shareholding structure, but no matter which kind of incentive under the shareholding structure, it will inevitably put forward new requirements for the future structure of the company's equity.
4. Improve morale. In addition to the full shareholding plan, the general company will not implement the full incentive policy when implementing the equity incentive plan, but only implement the equity incentive for the company's core technical personnel and management personnel. Therefore, the existence of the incentivized objects in the company is undoubtedly an example and example for the uninvited objects, which can effectively enhance the company's internal working atmosphere, improve the morale of the company's overall employees, and make "being motivated" the goal of the company's employees.
5. Filter the true and false. The design of equity incentive schemes can sometimes help companies effectively identify whether the incentivized objects are bearish or bullish for the company's future development. For example, in the hybrid incentive, the company can give the incentive object the right to choose to purchase the actual shares of the company with the incentive bonus or choose to redeem the part of the incentive cash, so that the bearish and bullish employees can be screened out through the selection plan of the incentive object when the annual incentive is cashed.
6. Enhance strength. Just as the above-mentioned company can achieve the goals of attracting talents, reducing labor costs, combing the health structure, and improving morale after doing equity incentives, the implementation of reasonable equity incentive policies in companies in the same industry can enhance the company's competitiveness to a certain extent and help the company improve the speed of development.
1. The scheme is complex. Compared with cash incentives, the practical landing of equity incentives is more complicated. For example, in the type of equity incentives, it involves the overall valuation of the company, the source of the company's incentive shares, the adjustment of the company's equity structure, the company's change registration, the design of the incentive model, the company's finance and taxation and other aspects of the coordination, so when the company intends to implement equity incentives, it is necessary to cooperate with external professionals to achieve the landing of incentives.
2. Subjective assessment. In general, when a company designs an equity incentive plan, the assessment of the incentivized object will be divided into two aspects: the assessment of the main and objective aspects. For the objective level such as performance goals, technical target level of the assessment of this generally will not appear imbalance evaluation situation, but in the subjective level of assessment is often the assessment results of the incentive object are assessed by the company's shareholders or designated personnel and calculated according to the weight ratio of the assessment results, which is also prone to personal evaluation inaccuracies, resulting in incentive goals can not be achieved, over time for the company's incentive program, it is difficult to raise the interest of employees, but lead to the company's internal incentives are unpopular.
3. Adventurism. Equity incentives can not be separated from the assessment, whether this assessment is objective or subjective, are easy to induce the occurrence of adventurism, such as enterprises to performance as the assessment goal, it is inevitable that some of the incentivized objects in order to achieve the assessment goals, do not hesitate to take risks, human initiative to intervene in the realization of the assessment results, so in this case how the company to avoid the occurrence of adventurism in the equity incentive, but also the company's incentive program design can not avoid the problem.
4. Unfair distribution. For example, in the stock option plan, if the final exercise price of the incentivized object is higher than the market price of the shares, then the incentivized object will definitely give up the exercise, which means that the incentive object fails to obtain the expected incentive in order to improve the company's performance and the active payment of the stock price, which can easily lead to low morale, and it is also easy to trigger employees' speculation about the original intention of the company's incentive.
5. Dispersed shareholdings. In a non-listed company (limited liability company), once the incentive object is exercised and the conditions for the transfer are met, then in order to avoid the destruction of the corporate personal agreement, then other shareholders must also transfer the part of the shares under the same conditions with the right of first refusal, such as giving up the right of first refusal, then it means that the company's personal compatibility will be affected; if the restricted stock in other non-listed companies is unlocked after the conditions are unlocked, the executive sells the part of the stock and cashes out, Then it is also easy to induce changes in the company's equity structure, resulting in the risk of a change of control of the company.
Therefore, equity incentives are like a double-edged sword, and multiple constraint mechanisms need to be supported when implementing equity incentives to ensure that the advantages of equity incentives are maximized and the disadvantages are limited to a certain company's control.
