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Equity incentive plans can achieve a deep binding of the interests of enterprises, employees and shareholders, and are seen as an effective way for enterprises to attract talent and increase mid- and long-term value.

Recently, many A-share listed companies have added equity incentive plans. Wind data shows that from August 1 to August 13 alone, 19 listed companies added equity incentive plans; if the implementation of equity incentive plans is taken into account, the number of related companies is as high as 53.

A set of data provided by Zhu Haibin, general manager of Kaiyuan Securities' Beijing Stock Exchange Research Center, shows that currently, among the companies listed on the Science and Technology Innovation Board, ChiNext, Main Board, and Beijing Stock Exchange, those with equity incentive plans account for 71.95%, 67.88%, 51.63%, and 36.14%, respectively.

According to the analysis of the interviewees, the low proportion of enterprises in the equity incentive plan of the Beijing Stock Exchange is related to the fact that it was established less than three years ago; the proportion of equity incentives in other sectors is related to the "scientific content" of the sector and the growth stage of the enterprise.

Generally speaking, equity incentives are more effective in high-tech companies and companies in the growth stage; mature companies may find a second growth curve with the help of equity incentives, while the effect of equity incentives on companies in sunset industries and monopoly industries is often minimal.

It is worth noting that, judging from the data of the past decade, the number of listed companies implementing equity incentives in my country has increased significantly overall, but has continued to decline in the past three years after reaching a peak in 2021. In the view of the interviewees, this is closely related to stock price stability and corporate confidence. With the subsequent stabilization of the stock market and the boost in corporate confidence, the number of listed companies implementing equity incentives is expected to further return to the upward path.

Since August, 19 companies have added equity incentive plans

Wind data shows that as of August 13, 19 listed companies have added equity incentive plans since August. If the implementation of equity incentives is taken into account, the number of listed companies that have added equity incentive plans during this period is as high as 53.

According to Zhu Haibin, as of now, a total of 90 companies on the Beijing Stock Exchange, which have been established for less than three years, have announced equity incentive plans, accounting for 36.14%, the lowest proportion among all A-share sectors; the Science and Technology Innovation Board has the highest proportion, which is 71.95%; the ChiNext and Main Board account for 67.88% and 51.63% respectively.

Looking at the long-term trend, the overall enthusiasm for equity incentives among my country's listed companies has increased significantly, but has declined in the past three years.

"In 2017, a total of 369 equity incentive plans were issued in the A-share market, while the number of equity incentive plans issued in 2021 has increased to 742, a relatively significant increase; the number of plans from 2021 to 2023 has declined slightly, with a total of 557 equity incentive plans issued in 2023. From 2024 to date, A-shares have announced 366 equity incentive plans." Zhu Haibin told reporters.

Why has the number of listed companies implementing equity incentives declined in the past three years? In the view of Zheng Peimin, chairman of Shanghai Rongzheng Investment Consulting Co., Ltd., this is related to the relatively sluggish stock market. "A major prerequisite for equity incentives to be effective is that companies and employees have sufficient confidence in the rise of the company's stock price. When the stock market is relatively sluggish, compared with equity incentives, immediate cash wages may have a more obvious incentive effect on executives and employees. Affected by this, when the overall stock market performs poorly, the enthusiasm of listed companies to implement equity incentives often declines. With the subsequent boost in the stock market and the increase in confidence in the recovery of listed companies' stock prices, the number of companies implementing equity incentives is likely to increase further."

In addition to stock market fluctuations, the awareness of equity incentives is also the key to whether equity incentives are implemented. Tian Lihui, dean of the Institute of Financial Development at Nankai University, believes that the enthusiasm of enterprises to participate can be further improved by optimizing the policy environment for equity incentives, increasing publicity and training efforts, and enhancing enterprises' understanding of equity incentives.

In Zhu Haibin's view, in order to maximize the effect of equity incentives, we need to start from many aspects. For example, we need to choose a suitable equity incentive model, design a layered incentive, enhance employees' confidence in the company, make financial and tax planning in advance before implementation, dynamically adjust the equity incentive plan during implementation, and regularly evaluate the incentive effect to ensure its continued effectiveness.

Rationally look at the pros and cons of equity incentives

The reason why equity incentives are popular among listed companies is their role in promoting corporate development.

Zhu Haibin believes that equity incentives can achieve consistency between the interests of employees and the company, and stimulate employees' enthusiasm and creativity. Specifically, on the one hand, making employees shareholders of the company enhances their sense of belonging and enables employees and the company to form a community of interests; on the other hand, by motivating key employees, attracting and retaining key talents, and improving their work enthusiasm and innovation, the company's competitiveness in the market is improved.

In Tian Lihui's view, equity incentives can stabilize management, motivate employees, attract and retain talent, thereby promoting the company's performance growth and improving the company's mid- and long-term value.

It is worth noting that raising stock prices through equity incentives is a major expectation of listed companies. According to the analysis of the interviewees, there is uncertainty about the impact of equity incentives on stock prices.

"On the one hand, the implementation of equity incentives may enhance investors' confidence in the company's future development, thereby driving up stock prices; on the other hand, if the market has doubts about the effectiveness of the implementation of the equity incentive plan, or believes that the exercise conditions are too loose, it may also have a negative impact on stock prices." Tian Lihui mentioned.

In view of this, Tian Lihui suggested that when investors look at the investment value of equity incentive companies, they should comprehensively consider factors such as the company's fundamentals, industry prospects, and the design of equity incentive plans, and rationally evaluate their impact on the company's long-term development.

At the same time, equity incentives may have side effects if implemented improperly.

According to Tian Lihui, if equity incentives are not set up properly, it may cause executives to focus too much on short-term performance and ignore long-term development; if performance evaluation indicators are set loosely, equity incentives may become a tool for executives to transfer benefits.

Equity incentives are not just a one-share solution

"Equity incentives can be seen as a way to boost the confidence of employees and investors, but it is not a one-size-fits-all approach," Zheng Peimin told reporters.

In Zheng Peimin's view, equity incentives should not be blindly believed in. They are just a plus point. The effectiveness of equity incentives needs to be based on the overall positive development of the enterprise.

"Equity incentives are like decoration, which can make a house (enterprise) more attractive, but the attractiveness requires the house to be in a good location and with a good layout. If the prospects of the industry to which the enterprise belongs are optimistic, the enterprise itself has excellent performance and good management, implementing equity incentives in this case will naturally be icing on the cake. But if the enterprise is plagued by problems, implementing equity incentives will be basically meaningless." Zheng Peimin told reporters.

Which companies are more suitable for equity incentives?

In Zheng Peimin's view, first of all, from the perspective of the industry development stage, the prospects of companies in the growth stage are optimistic and there is broad room for stock price increases. The implementation of equity incentives can boost the work enthusiasm of executives and employees to a greater extent.

Secondly, from the perspective of corporate competition, the more competitive the enterprise, the more suitable it is for equity incentives. Equity incentives have the effect of attracting talents. With the help of equity incentives, enterprises can retain talents to a greater extent and reduce talent outflow. On the contrary, monopoly enterprises are not highly dependent on talents, and the significance of implementing equity incentives is relatively small.

Furthermore, from the perspective of the nature of the enterprise, the higher the technological content of the enterprise, the higher the degree of dependence on human capital, and the more significant the effect of implementing equity incentives. Once the core scientific and technological talents are lost, it may bring a great blow to the enterprise. For core talents, enterprises can achieve a deep binding of talents and corporate interests through the implementation of equity incentives.

At the same time, in addition to scientific and technological talents, excellent management talents, marketing talents, etc. are also indispensable. Any company that is highly dependent on talents can consider using equity incentives to enhance the attractiveness of core talents.