Evaluation Of Equity Incentive Effect Of Chinese Home Appliance Industry Listed Companies

Equity incentive is a way to motivate employees, by granting operators equity, enabling operators to participate in company decision-making as shareholders, taking risk and sharing corporate profits, in order to motivate their diligent service for company’s long-term development. In theory, equity incentive is an effective long-term incentive system, it’s benefit to enterprise’s healthy development. Home appliance industry is the one which firstly stepped into the market competition. The whole industry competition has changed from pure price competing to comprehensive competing, including technologies, industrial chain, channels and services. In order to retain and attract excellent Employees and enable enterprises to stand out in a comprehensive competition, Chinese home appliance industry listed companies have actively been making equity incentive plan.So, what’s the implementation effect of equity incentive in entire home appliance industry? And how to specifically evaluate the equity incentive effect? For these two study purposes, the paper has made a definition of equity incentive effect, combined with previous studies, equity incentive principles and theoretical basis. Then, from four aspects as follows to evaluate specific implementation effect of equity incentive:reduce the executives’ investment short-sighted behavior, reduce executives’ financial short-sighted behavior, reduce the executives’ operating short-sighted behavior and improve company performance and shareholder returns. That’s equity incentive effect evaluation system. After that, based on the evaluation system, using financial indicators analysis method and comparative analysis method,after selecting samples and financial indicators, this paper has evaluated the implementation effect of equity incentive for Chinese home appliance industry listed companies. Finally, By specifically analyze Gree’s equity incentive plan and the effect, combined with status quo of entire appliance industry’s equity incentive, this paper has summed up possible problems about equity incentive in Chinese appliance industry and made some improvement suggestions.The content of this article is made of seven parts, and they are as follows:this paper contains seven parts. Part one introduces the background of this research. The second part is literature review of equity incentive.Part three analyzes the theories of equity incentive. We will study the following four aspects of equity incentive:(1) The basic conception of equity incentive and how it works.(2) Principal-agent theory, Human capital theory, and Two-factor theory. They will be applied in this research.(3) Based on the previous three theories, we define the effect of equity incentive and establish an evaluation system of the effect of equity incentive.(4) Find out factors of equity incentive’s effect, which are the external environment, the internal factors and the program of equity incentive.In the fourth part, we analyze the situation of home appliance industry’s equity incentive in China. According to the analysis, we find that, from2006to2013, there have been25equity incentive programs being announced. The Congress has also approved most of the programs and they are adopted by the private placement as well. Besides, the incentive target contains the senior management and core technical staff.The fifth part shows the researches on the datum of the effect of home appliance industrial equity incentive. With the evaluation system that established in the third part, we take10companies as sample and compare the indexes with the industrial average level and the companies’historical data. Then we appraise the home appliance industrial effect of equity incentive. In conclusion, the equity incentive of home appliance industry works and it deducts the short-sight of senior management.Part six contains a case study-Gree Electric Appliance Co.. The equity incentive of Gree reduces the short-sight investment and operation cost significantly. More importantly, the achievement is magnificent. But the equity incentive has little impact on financial plans. We also find some disadvantages of Gree’s equity incentive program, for example, the performance evaluation system is too simple to achieve advanced goals.Part seven is the conclusion. We have found some vital issues about equity incentive of home appliance industry, for instance, the model of motivation is monotonous, the indexes in the program are simple and the price of private placement is low. Therefore, recommendations such as improving the external environment, enhancing the internal control and further making the programs more effective are suggested at the end of this research.The main contribution of this paper:(1) Combined with equity incentive principles and theoretical basis, this paper has specifically defined the effect of the equity incentive and initially established an equity incentive effect evaluation system.(2) Based on the evaluation system established in chapter Three, after sample collection, indicators selection, using financial indicators analysis and comparative analysis, this paper has specifically revealed the equity incentive implementation effect of Chinese home appliance industry listed companies,(3)By detailed analysis of status quo and Gree’s equity incentive program, summed up possible problems in equity incentive of Chinese home appliance industry listed companies. In addition, put some improvement suggestions.