A Study Of Incentive In Shanxi Merchants' Personal Shares System

The so-called Personal Shares is also known as the Manpower Shares.It means that the Shanxi Merchants' manager and senior counterjumper could be entitled to equal shares of profit with investors,not needing capital but using their talents and contributions.The personal shares system was the affirmation of the value of the labor force.The personal shares system was an important system of Shanxi Merchants' operation and management.It played an important role in the development of Shanxi Merchants.It also became an important reason to make Shanxi Merchants keep long prosperous.Shanxi Merchants adopted the management mode of the separation of ownership from management.The problem of the agent risks and agency arose with the appearance of the principal-agent relationship.As the information between investors and managers was asymmetrical and it was not easy to supervise the managers for the investors, Shanxi Merchants gradually found out the personal shares system through the long-term managing experiences.It made the external problem that the principal supervised agent transform into the agent self-selection based on the cost-benefit.In this way,the utility function between the principal and agent become consistent,so that their incentive compatibility achieved.The incentive role of the personal shares system achieved mainly through positive incentives and negative incentives.On one hand,Shanxi Merchants used three ways to stimulate the managers,which includes material incentives by giving the managements and senior counterjumper a lot of dividends,status incentives through improving their power and spirit incentives relating to trust and reputation.On the other hand,Shanxi Merchants were very good at constraining the agent through many approaches,such as the personal shares system's supervision,punishment and constraint mechanism,the third-party enforcement institutions and an increase in the opportunity cost.The personal shares system stimulated the majority of the counterjumpers' enthusiasm at the early stage.Therefore,it prompted the increase of profits and the expansion of business.The personal shares system effectively avoided the agent's opportunistic behavior.So it received good incentive effect and was in the stage of performance increasing.However,the drawbacks of the personal shares system began to appear when the system implemented constantly.The performance of the personal shares system declined gradually even became invalid finally.Nevertheless,it was extremely effective overall, because it adapted to the institutional environment at that time.It had played a significant role in incentive and constraint of the manager.As a result,the personal shares system had been implemented for more than three hundred years,and even adopted and generalized by other businessmen.The incentive idea of the personal shares system is even used nowadays.The structure and main content of this thesis is as follows:This thesis is divided into six chapters.Chapter 1 is Introduction.In this chapter,it presents the motivation for writing the thesis,the meaning of this topic,the evaluative survey of relevant literatures,theoretical foundation,the main theories and structure of the thesis and so on.Chapter 2 discusses the reasons why Shanxi Merchants adopted the personal shares system to incentive the managers.The reasons included three ways:Shanxi Merchants' principal-agent relationship and agency problem,Shanxi Merchants' the property right characteristic of human capital and the effect of incentive compatibility from the personal shares system.Chapter 3 interprets the multiple incentive effects of the personal shares system from positive incentives and negative incentives.The positive incentive includes material incentives,power and status incentives and spirit incentives.The negative incentive refers to the supervision,punishment and constraint mechanism.Chapter 4 discusses the incentive performance analysis of Shanxi Merchants' the personal shares system from increasing efficiency and decreasing efficiency.It also analyzes the reasons and performance of increasing efficiency and decreasing efficiency.Chapter 5 compares Shanxi Merchants' personal shares system with modern incentives system including modern labor shares system and stock options.It is to find the similarities and differences between them and thus explore suitable modern incentive system.Chapter 6 is the conclusions and the inspiration.It summarizes the main point of the thesis,and discusses the inspiration of Shanxi Merchants' personal shares system for modern incentives system.