The Validity of Stock Incentive
|Keywords||Stock incentive Horizontal equity Incentive gap Constraint mechanism|
Many studies have examined the direct relationship between stock incentive and firm performance.But they got inconsistent results.The reasons rest with most of these studies focused on the direct relationship between stock incentive and performance,and they ignored the interior mechanism inside the different interior mechanism.So the most important thing is which interior mechanism influences the result of stock incentive.This paper tries to research the question.This paper examined stock incentive in new point of view of the interior mechanism,and answered two questions that were important to stock incentive:(1) what are the key factors that affect validity of stock incentive?(2)What are the key factors we should consider when we set up a stock incentive mechanism?The interior mechanism could divide into two parts:incentive and constraint. People’s motivation roots in compare between people.Their behavior based on these judgments.So this paper researched incentive factor in the following tow aspects: (1) the equity of managers in the same level,i.e.horizontal equity.The empirical results show that the relation between horizontal equity and firm performance is positive;(2) the gap between managers of different levels.The empirical results show that enlarging the gap could improve firm performance.As to the constraint to managers,this paper suggest binding managers’ income to firm performance and making managers’ income equal to their risks.The incentive mode without constraint might be inefficient.We should take these factors into account when setting up stock incentive mechanism.