"Equity Incentive" Helps Great Wall Huaguan Drive on the Expressway

"On the first day of the company's opening, there were only 10 people. We found a small hotel, saved a few machines and started to work. At that time, there was only one word in our mind - 'We want to become the best automobile research and development institution in China. '." The hardships of starting a business have been mentioned in one sentence. When referring to equity incentives, Lu Qun said, "The purpose of sharing equity to the core backbone is to make everyone feel that they are not here to work, but to complete a cause together." Since its establishment ten years ago , no matter how the company's nature and management structure change, Beijing Great Wall Huaguan Automobile Technology Co., Ltd. (hereinafter referred to as "Great Wall Huaguan") has always used equity incentives as a way to attract and retain talents, and kept the turnover rate of core employees below 10%. Quickly become a leading brand in the automotive design industry.

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Verbal Equity

In 2003, when China's own brand automobile companies were booming, the field of independent research and development and design of automobiles ushered in unprecedented opportunities. Under the leadership of the current chairman Lu Qun, 6 partners who have been in the industry for a long time and have rich experience have registered and established Great Wall Huaguan with a joint venture of 500,000 yuan, providing the whole process from product positioning to production services. Vehicle design development and service.

This company, founded from scratch by the R&D team, did something seemingly unrelated to entrepreneurship at the beginning of its establishment: split shares and held shares in real names. Lu Qun holds 20%, and the other 5 members of the founding team each hold 10%. "It is very important that we did not complete all the equity, and set aside 30% for the employees who joined later." Lu Qun emphasized, "We are all technical backgrounds, and we do not have a particularly clear concept of equity incentives, just I feel that all employees should be participants in the company's development."

Looking back, Great Wall Huaguan did a very "fashionable" thing for employees at that time: equity incentives. However, this spontaneous oral agreement-style original equity allocation method did not provide written specifications for the formulation, allocation and withdrawal of stock prices, leaving a hidden danger for the future development of the company.

With the strong technical background of the entrepreneurial team, Great Wall Huaguan has rapidly expanded its scale after its establishment, and its R&D output value has continued to rise, completing the original accumulation healthily and quickly. At this time, the management team led by Lu Qun decided to introduce strategic investors and move forward at full speed to "China's most outstanding automobile R&D institution". The initially reserved shares were also distributed to 15 employees who made outstanding contributions. However, Lu Qun is well aware of the importance of the R&D team, "How can our core team be able to jointly participate in the company's development, enjoy the benefits, and more importantly, let them have a common sense of career? Further equity incentives must be carried out!"

Redesigning the plan

In 2008, the management team coordinated with the investor, especially the investor's state-owned capital background, "At this time, not only the team's will, but also the state-owned The rules and regulations and requirements of asset management cannot cause problems such as the loss of state-owned assets, and must find a legal, compliant and effective solution.”

Qiu Yuhua, the vice president of Great Wall Huaguan at the time, was instructed to lead the design of a new equity The incentive plan focuses on regulating the source of funds, the source of equity, and the selection of incentive objects. At this time, the irregularity of the early plan made the contradiction even more prominent. Mr. Qiu, who had a background in finance, said helplessly, "Because there was no written agreement for the previous equity incentive, and it was not clear how the equity would be priced if someone resigned in the future, for the sake of the new and old plans. Before the implementation of the new equity incentives in 2008, all the corresponding agreements were signed. According to this agreement, employees' resignation and withdrawal of equity are handled according to the audited net asset value of the company at the end of the year before leaving. Such pricing is mainly based on In order to comply with the relevant regulations on the management of state-owned assets."

"The source of funds is that part of the excess profits accumulated by the company will be used as incentives, and the other part will be paid by the incentive objects themselves." Qiu Yuhua introduced the design principles of the new scheme, "According to the company's net asset value after auditing and evaluation before the capital increase, how much per share is converted, and the incentive object will increase the company's capital to purchase shares at the same conversion ratio. This is the source of equity. These two sources are the primary issue. "

What is more important is the choice of incentive objects. The core of equity incentives is still people, and it is also a constraint on people as well as incentives. "Equity incentive is to tie employees to the company for a longer period of time," said Lu Qun, a manager. "Selecting the incentive object, first, according to the characteristics and processes of automobile R&D, redefine the employees in important positions, and draw two lines and three dimensions. One management line and one technology line. One dimension includes historical contributions, that is, the time served in the company. The second is the rank, people of different ranks have different values and roles to the company, and the distribution coefficient is also different; the third is the performance, only those who complete the performance appraisal goals can get the complete equity.” After adjustment, holding The number of natural person shareholders of the shares has increased to more than 70, which is close to one-third of the total number of Great Wall Huaguan.

Facts have proved that this is a scientific and effective equity incentive. In the "cold winter" of the automobile industry caused by the financial crisis, Great Wall Huaguan's employee turnover rate was significantly lower than the industry average, and none of the core backbone employees left. Therefore, when the management team repurchased the shares in 2012, the previous plan has been carried over to this day.

Not a panacea

Hu Bayi, the author of "9D Model of Equity Incentive", said that in modern enterprises, compared with the traditional compensation incentive system of "salary + bonus + welfare", equity Incentives build a closer strategic development relationship between the company and its employees. Looking back on the company's development in the past ten years, Lu Qun did not hesitate to affirm the role of equity incentives, especially in stabilizing the core backbone employees and uniting everyone to overcome difficulties and promote the company's development.

However, equity incentives are not a panacea for attracting and retaining key employees. The core is to ensure incentive effects. As a beneficiary, Lu Qun said frankly, "For employees, holding company shares is an investment that is eager to get returns. If the shares held are only symbolic, the enthusiasm will not be high." Qiu Yuhua agreed and added that the incentive effect is subject to incentives. Quantity of equity, incentive equity pricing and company performance. According to the survey, although more than 70% of the owners of small and medium-sized enterprises have considered using equity incentives, the proportion that has actually been implemented at present is not high. On the one hand, due to factors such as fierce competition in the industry, the company’s life span is not long, making it difficult for core employees to make long-term plans; on the other hand, it is also closely related to the inability to circulate shares in small and medium-sized enterprises.

On December 13, the State Council issued the "Decision on Issues Concerning the National Equity Transfer System for Small and Medium Enterprises" (Guo Fa [2013] No. 49), marking a significant progress in the construction of a multi-level capital market. As lawyer Cao Jun of Guangdong Lianjian Law Firm said, after the official operation of the New Third Board, the financing channels for small and medium-sized enterprises will be broader, more flexible, and easier to operate. The listing of small and medium-sized enterprises on the New Third Board will not be restricted by regions and industries. The trading system can choose between bidding, market making and negotiated transactions. Moreover, after meeting the listing conditions, they can also be directly transferred to the stock exchange for listing! This is undoubtedly a major benefit for small and medium-sized enterprises that are unable to raise funds through IPO listing in the short term! After the company is listed on the New Third Board, employees who have previously obtained equity due to equity incentives will receive "bonus" in the capital market. Under the protection of the law, the company's shares held can be legally traded and circulated through listing transactions.

In Great Wall Huaguan, the rapid development has increased the company's net asset value, and the number of shares that employees can afford to buy has decreased. "For a long time, we have not pursued the largest scale and the largest turnover, but the most advanced technology, the highest value created per capita, and the best reputation in the industry. When the company does not pay dividends in the short term, and the long-term listing is not in sight, the employees who hold shares, especially those in the middle Lower-level employees feel that the value of equity incentives is not as great as they think, so they simply leave." You can hear Lu Qun's meditation on this point, and he quickly pointed out the key point, "It is still necessary to arrange the return of equity in the later period. And not too long, not too long.”

In response to these, Great Wall Huaguan began to refine the plan to motivate employees. The equity of senior managers focused on participating in strategic decision-making, while the equity of middle and lower-level employees focused on future equity returns; at the same time, it began to study The return of equity incentives in the short term, "We are formulating annual equity incentives, and the number is not so many, but it can reward employees in a more timely manner based on the performance KPIs of the current year."