At present, equity incentive has become an important means for many enterprises to attract and retain talents. Equity incentive changes the simple employment relationship, makes the incentive object have a stronger sense of belonging and achievement, meets the deeper needs of the incentive object, greatly mobilizes the enthusiasm and initiative of the incentive object, and realizes the win-win situation of enterprise development and talent development. In the practice of equity incentive in non-listed companies, many enterprises ignore or do not know the underlying logic of equity incentive, and imitate others' equity incentive schemes metaphysically, leading to the incentive effect backfires. Equity incentive involves many problems such as human resource management, law, finance and taxation. Equity incentive scheme is the art, and the underlying logic of equity incentive is the foundation. Reward and incentive, profit sharing and decentralization, entry and exit are the three core underlying logic of equity incentive, which are the key to the success of enterprise equity incentive, and are also the minefields easy to tread in the practice of enterprise equity incentive.

一、Reward and incentive

The purpose of equity incentive is one of the lowest logic of equity incentive scheme. Usually, the purpose of equity incentive is reward, incentive, financing, etc. In practice, reward and incentive are the main purposes. The different purpose of equity incentive determines the different equity incentive schemes. For example, stock incentives that focus on reward purposes usually grant restricted stock options. The so-called restricted equity means that the incentive party grants a specific share of the company's equity to the incentive object in accordance with the conditions stipulated in the equity incentive plan, but the incentive object is restricted in the transfer of some rights such as the company's equity obtained based on the incentive plan. In essence, restricted stock rights are given to the incentive object when the equity incentive plan is implemented and registered as the shareholder of the company, but the transfer of the equity held by the incentive object and the setting of security and other disposal behaviors are restricted. If there is no achievement in setting the conditions, the incentive object shall not transfer the incentive equity it has obtained. "Give first and then restrict" is one of the main characteristics of restricted shares. Restricted stock incentive has the dual effect of reward and incentive. In practice, it is more applicable to the old employees who have made outstanding contributions to the company. For example, equity incentives that focus on incentive purposes usually grant equity options. The so-called equity option is to grant the incentive object the right to purchase a certain number of shares of the company within a certain period of time in the future under predetermined conditions. Compared with restricted equity incentive, when implementing equity option incentive, the company's equity is not given immediately, but promises that the incentive object has the right to buy a certain amount of equity when the preset conditions are fulfilled in the future, and whether the company's equity can be obtained in the end is uncertain. "Promise first and give later" is one of the characteristics of equity options. The consideration point of equity option incentive is mainly to motivate employees to deeply bind with the company, grow together, and create greater value for the company in the future. For another example, the equity incentive that focuses on the purpose of financing will be different in determining the grant price and the scope of the grant object. Equity incentives for non-financing purposes are generally granted to core employees, the number of equity grants is limited, and the price of equity grants is more favorable, such as gratuities or at the parity of the company's registered capital. For equity incentives that focus on financing purposes, the object of grant is relatively broad, and the grant price usually has a certain premium, such as referring to the company's net capital or financing valuation preference grant. The purpose of equity incentive is one of the key underlying logic that must be considered in the enterprise equity incentive, and it is also the most important factor to determine the specific incentive plan of the enterprise.

二、Profit sharing and decentralization

Profit sharing and decentralization are another underlying logic of equity incentive. After the enterprise grants incentive shares to the incentive object, the incentive object will, in principle, enjoy economic interests such as dividends and transfers to the company based on the incentive shares. It is precisely because equity incentive has the economic attribute of sharing the development benefits of enterprises that it has become one of the important compensation means for enterprises to attract or motivate core employees. Restricted stock incentive, stock option incentive, virtual stock incentive, dividend right incentive, increment right incentive, incentive fund incentive and so on have the economic attribute of profit. The decentralization attribute of equity incentive means that after the enterprise grants incentive shares to the incentive object, the incentive object usually enjoys managerial rights and interests such as the right to know and the right to vote based on the incentive shares. It is a problem worth thinking about to encourage the object to participate in the enterprise management while encouraging the share profit. It is generally believed that in the early stage of enterprise development, priority should be given to decision-making efficiency, absolute voting rights of founders should be guaranteed, and incentive objects should not participate too much in corporate governance and influence founder decisions. Based on the consideration of decentralization, there are two different shareholding modes in the practice of equity incentive: direct shareholding and indirect shareholding. The so-called direct shareholding refers to the equity directly granted by the incentive party to the incentive party when implementing the equity incentive, and the incentive object is directly registered as the incentive party's shareholder, who enjoys the right to know, voting right, dividend right and other shareholder rights of the company. The advantages of direct shareholding are as follows: employees directly register as shareholders of the company, employees will have a stronger sense of security, incentive effect is good; Employees directly hold the equity of the incentive party, and when the company achieves IPO, the incentive object can directly sell shares in the secondary market after the lifting of the ban, and the exit path is convenient; The object of incentive may apply the deferred tax policy stipulated in Article 101. However, the direct shareholding method also has many disadvantages, such as limited by the upper limit of the number of shareholders, the flow of employees will affect the stability of the company's equity structure, etc. In particular, under the direct shareholding model, the incentive object has the right to know, voting rights and other shareholder rights, which will affect the decision-making efficiency of the company's shareholders' meeting to a certain extent. The so-called indirect shareholding means that when the incentive party implements the equity incentive, it does not directly grant the equity of the incentive party, but grants the incentive object a certain amount of the equity of the incentive platform company or the property share of the partnership through the establishment of an incentive platform. Compared with direct shareholding, the incentive object in indirect shareholding mode is not the incentive shareholder, but indirectly enjoys the interests of the incentive party through the incentive platform, which is also called "platform equity incentive". In the indirect shareholding mode, the shareholders or partners registered as the incentive platform are not the shareholders of the incentive party, and the incentive company does not have the right to know, voting rights and other shareholder rights. It can motivate employees and not split the profits at the same time, which is a mainstream shareholding mode in the practice of equity incentive of non-listed companies.

三、Entry and exit

A camp of iron, a soldier of flowing water. In the process of enterprise development, some partners gradually grow into partners due to the improvement of ability, contribution and responsibility; Some partners leave because of passion, pursuit, ability, etc. While introducing partners through equity incentive, presetting the withdrawal mechanism of incentive object in advance is another important underlying logic of equity incentive. When implementing equity incentive, enterprises should consider the entry mechanism and exit mechanism of partners as a whole, so as to avoid disputes or disputes caused by unclear rules. The entry and exit mechanism of partners is mainly realized through the installment unlocking system of restricted shares or the installment exercising system of equity options. Phased release of restricted equity, also known as restricted equity cashing, means that the restricted equity obtained by the partner is released in stages during the lockup period; If the incentive object leaves the entrepreneurial team before the restricted shares are unlocked, only the unlocked part of the equity can be obtained, and the ununlocked part of the equity can be recovered by the incentive party without charge or according to the agreed price. In practice, the lock-in period is usually 3-4 years or before the company goes public; Unlock once the lockup period expires. If the partner leaves within the lockup period, some of the restricted shares that are not unlocked will be recovered. Specifically, it can be subdivided into the following two situations: (1) Partners' wrongful resignation during the lock period. For example, the partner is dismissed by the company because of malpractice, theft, fraud, serious violation of discipline, etc.; In this case, the partner is at fault, usually the incentive party repurchases the ununlocked restricted shares of the incentive object free of charge, or repurchases the ununlocked restricted shares of the incentive object at the grant price. (2) Non-fault departure of partners during the lockup period. For example, if the partner unilaterally proposes resignation, death, loss of civil capacity and other reasons lead to the termination of the labor relationship, in this case, neither the partner nor the company is at fault, and the enterprise will usually pay to buy back the incentive object that has not unlocked the restricted shares. For example, the company can determine the repurchase price according to the grant price plus bank interest in the same period, the valuation discount of the latest round of financing, the net asset multiple or the net profit multiple. The installment exercise of equity option refers to the installment exercise of equity option granted by the incentive object. If the incentive object leaves the entrepreneurial team before the exercise of equity option, it can only obtain the equity that has been exercised, and the equity that has not been exercised will be automatically lost. The common installment exercise mechanism of equity options is: (1) annual average exercise. For example, the exercise period is 4 years, and the average annual exercise is 25%. If the partner withdraws in the second year, only 25% of the incentive shares will be awarded. (2) Exercise the right in installments after reaching the minimum period. For example, the exercise period is 4 years, the partner will exercise 50% after 2 years of service, the remaining 50% will be exercised for 2 years, and the incentive share will be 25% each year. If the partner leaves in the second year, they do not get the equity. This approach avoids the practical problem of the greater uncertainty of early partners. (3) Progressive acceleration of exercise. For example, the exercise period is 4 years, 10% in the first year, 20% in the second year, 30% in the third year, and 40% in the fourth year. To some extent, this method is a reward for the service period, and the longer the service period, the more equity will be obtained. (4) Exercise rights according to project milestones. For example, the exercise period is 4 years, during which a specific proportion of equity options can be exercised according to project milestones such as completion of product development, product launch, and achievement of sales targets. This method has the particularity of the project and is rarely implemented in practice. In the process of entrepreneurship, the enterprise should plan the exit mechanism of the partner in advance when granting the partner's equity, so as not to lead to disputes. The partner entry and exit mechanism can not only protect the rights and interests of each partner, but also ensure the steady development of entrepreneurial teams and entrepreneurial projects.

Ignoring the underlying logic of corporate personalized equity incentive and metaphysically copying others' incentive plan is a common misunderstanding in equity incentive of non-listed companies. When formulating equity incentive plan, enterprises should first think from the underlying logic of equity incentive reward and incentive, profit sharing and decentralization, entry and exit, and then formulate equity incentive plan in line with their own needs, so as to avoid metaphysics.