Today, outstanding enterprises such as Alibaba, Huawei, and Xiaomi can achieve their current success, which is inseparable from their talent strategies and talent systems. The development of an enterprise can be attributed to the contributions of people, and the decline of an enterprise can be attributed to human issues. For an enterprise to develop, it must pay attention to the issue of talent. Discovering talents, retaining talents and making good use of talents have become the key strategies for the development of every enterprise. It is difficult for enterprises without a talent strategy to achieve sustainable development. With the rapid development of society, the values of talents are also changing. The salary means that have been effective for a long time are no longer the most important factor to attract talents, nor can they retain outstanding talents for a long time. Equity incentive has changed the simple employment relationship, given the incentive objects a stronger sense of belonging and achievement, met the deeper needs of the incentive objects, greatly mobilized the enthusiasm and initiative of the incentive objects' work, and achieved a win-win situation for the development of enterprises and talents. At present, equity incentive has become an important way for enterprises to attract and retain talents. Business operators often ask: What kind of equity incentive plan is the best? This is a very difficult question to answer, because any equity incentive plan has its advantages and disadvantages. It is clearly inappropriate to discuss the merits of the incentive plan metaphysically without considering the operating requirements. Good or bad depends not on the equity incentive plan itself, but on the needs of the incentivizer and the actual situation of the incentive objects. What suits is the best, and vice versa, it is not good. The company's equity incentive plan involves systematic issues such as the incentive model, shareholding method, incentive platform, tax burden cost, and equity pricing. This article first explores the issue of equity incentive models, in the hope of being helpful in determining the equity incentive plan of the enterprise. In view of the fact that listed companies have certain special requirements in terms of the incentive period, etc., and the above special requirements are not universal. This article only discusses the equity (stock) incentive issues of limited liability companies and joint stock limited companies at the non-listed stage, hereinafter referred to as equity incentives. In the practice of equity incentives, there are many modes such as restricted equity incentives, equity option incentives, virtual equity incentives, and incentive fund incentives. Among them, the more common ones are restricted equity incentives, equity option incentives, and virtual equity incentives. The details are as follows:

Restricted Equity Incentive

Restricted equity incentive refers to the situation where the incentivizer grants the incentive object a specific share of the company's equity according to the conditions stipulated in the equity incentive plan, but the incentive object's transfer and other partial rights of the company's equity obtained based on the incentive plan are restricted. Essentially, the restricted equity means that the incentivizer gives the incentive object the company's equity but makes certain restrictions on the incentive object's acts of disposal such as transfer and setting guarantees of the equity. When the set conditions are not fulfilled, the incentive object shall not carry out acts of disposal such as transfer of the equity they have obtained. "Giving first and then restricting" is one of the main characteristics of restricted equity incentives. In practice, the restrictive conditions of the incentivized party are usually to meet a certain working period or achieve a certain job performance. The restricted equity incentive model is mainly based on two aspects of business considerations. One is the reward for the past contributions of the entrepreneurial team or the key employees who accompanied the company's growth, and the other is to continue to encourage key employees to grow together with the company and create greater value for the company. Restricted equity incentives have the dual effects of rewards and incentives. In practice, they are more applicable to old employees who have made outstanding contributions to the company. Because restricted equity incentives are "giving first and then restricting", equity repurchase issues will be involved when employees leave the job and other situations occur. Lock-up period, repurchase conditions, repurchase price and other repurchase plans are issues that the incentivizer has to consider. Even if the repurchase clause is clearly stipulated, there are situations where the departing employees do not abide by the agreement reached by both parties. Once such a situation occurs, disputes need to be resolved through litigation and other means. This incentive model is relatively complicated to operate. This model is mostly used for employees who have made great contributions to the company, have passed a certain probationary period, and need to continue to be incentivized to grow together; in the practice of introducing talents or incentivizing new employees in an enterprise, the restricted equity incentive model is less applicable.

Equity Option Incentive

Equity option incentive means that the incentivizer grants the company's incentive objects the right to purchase a certain amount of the company's equity within a certain period in the future under pre-determined conditions. Compared with restricted equity incentives, the equity option incentive does not give the equity when the incentivizer implements the equity incentive, but promises to give the company a certain amount of equity when the pre-set conditions are met in the future. "Promise first and then give" is one of the characteristics of equity option incentives. Compared with the two, restricted equity is a restricted equity; equity option is an expected right for the future and a right to become a shareholder in the future. The consideration of equity option incentives is mainly to encourage key employees to be deeply bound with the company, grow together and create greater value for the company in the future. In practice, the incentive objects can usually obtain the corresponding equity only after meeting a certain working period or achieving a certain job performance. Equity options originated in the United States. They are mainly based on meeting certain performance indicators as the exercise conditions. The exercise period can be long or short. There are also issues such as equity repurchase when employees leave before the exercise. The enterprise has greater initiative and flexibility and is currently the most common and popular incentive method. However, because in principle, equity options do not enjoy rights such as transfer and setting guarantees before the exercise, nor do they enjoy the right to dividends, and there is certain uncertainty regarding whether they can finally be exercised. Therefore, the attraction to incentive objects is relatively weaker than that of restricted equity incentives. Equity option incentives cannot have a good rewarding effect on old employees who have made outstanding contributions. They are more applicable to introducing new employees or encouraging new employees to grow together with the company and create greater value for the company in the future's work.

Virtual Equity Incentive

Virtual equity incentive refers to the situation where the company grants the incentive object a kind of virtual equity, and the incentive object can enjoy a certain amount of dividend rights accordingly, but the incentive object is not a true shareholder of the company and does not enjoy shareholder rights such as ownership, voting right, transfer right and inheritance right. When leaving the job, they no longer enjoy the rights and interests of virtual stocks. Virtual equity is essentially a right to dividends, not equity. In practice, incentive objects can usually obtain the corresponding virtual equity only after achieving certain job performances. Compared with restricted equity incentives and equity option incentives, what the company grants the incentive objects in virtual equity incentive is "virtual" equity. When the company achieves the performance target, the incentive objects can enjoy a certain amount of dividend rights accordingly. Virtual stocks do not enjoy shareholder rights such as ownership, voting right and inheritance right, and do not need to be registered as shareholders in industry and commerce or the China Securities Depository and Clearing Corporation Limited. The operation is the most flexible. Virtual equity is easy to operate. Just draw up an internal agreement without changing the company's equity structure or considering the source of incentive equity. This is a major advantage of virtual equity incentives. However, under this incentive model, employees do not enjoy shareholder rights such as ownership, voting right, and inheritance right. Therefore, the incentive effect on employees is weak. In addition, because the enterprise's cash expenditure for incentives is large, it will affect the enterprise's cash flow. After all, not all enterprises can ensure sustained high growth and high profits, which poses certain financial requirements for enterprises to implement virtual equity incentives. When implementing the virtual equity incentive model, how to assess the performance of personnel participating in the virtual equity incentive plan is another issue to be considered. Enterprises implementing virtual equity incentives should carefully consider how to link the remuneration of operators to their performance. In practice, virtual equity incentives are mostly used in situations where enterprises with good cash flow conduct timely incentives for front-end personnel such as sales. This model can not only determine the incentive objects' performance well, but also enable the incentive objects to share the business performance in the first time flexibly, and the incentive effect is prominent.

After the above discussions, managers should have a certain understanding of the three common equity incentive models. However, it needs to be emphasized again that each equity incentive model has its specific applicable soil. The determination of the incentive model is not only a legal issue but also a business issue. The incentivizer should hire professional lawyers to comprehensively judge based on business factors such as the company's development stage, industry, financial situation, and the situation of the incentive objects, and determine the most suitable incentive model and incentive plan. In practice, based on the diversity of incentive objects, many incentivizers will adopt two or more incentive models in the incentive plan.