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Redefined Equity Incentives: How to reward Non-Listed Companies Employees

Redefined Equity Incentives: How to reward Non-Listed Companies Employees

Redefined Equity Incentives: How to reward Non-Listed Companies Employees

This book breaks through a single set of legal thinking as it systematically analyzes how non-listed companies formulate and implement equity incentives from multiple perspectives such as human resource management, economics, and psychology. Through analyzing domestic well-known cases and integrating big data, evidence and theory, it reveals the conditions, risk control and operation steps of non-listed companies to formulate and implement equity incentives, and proposes the methodology and solutions suitable for non-listed companies' equity incentives.

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LEONG, Huey SyVice-Provost of National University of Singapore Business School, Professor of Strategy and Policy

Equity applies big data to make a contrast, from the perspective of company management, between the real environment and legislation for equity incentives of listed companies, and to give concrete solution for non-listed companies’ equity incentives. This book takes an outstanding place in the relatively poor and empty academic area of equity incentives.



Lv HongbiVice President of All China Lawyers Association

Mr. Song is an excellent and experienced lawyer in company law and tax law who has written and published a handful of works during the past years. I can feel the power of his accumulated strength in law and a persistent craftsmanship spirit. Equity itself provides a brand new view for lawyers and entrepreneurs.

Chen ChunhuaProfessor of Peking University National School of Development, Guest professor of National University of Singapore Business School

The fast development of technology makes sharing possible and turns it into an internal need. As a result, whether your company is listed or non-listed, there is one thing with no doubt. That is the right solution for equity incentives. This book gives reliable answers for all your questions.

Zhu ChunlinPresident of MLN INVESTMENT HOLDING(GROUP)PTE LTD

How to provide effective incentives is always a question for entrepreneurs. Thanks for Mr. Song’s new book. In this book, he teaches us to use equity incentives carefully by analyzing shareholders disputes in a systematic way.

Dong DongdongFounder of Wei An Law Firm and Win Team 500 Law Firm

Mr. Song pays all his attention to study company management and persists in his work for years. In the era of using wealth as incentive for intelligence, this book uses ideas of law, management, and psychology comprehensively to rethink the project of how to stimulate employees’ vitality and creativity.

Gao YiCEO of DESIQIN Group

Equity is a crystallization of its author’s years of experiences in both company law and tax law. Analyzing effects and risks of equity incentives in non-listed companies in understandable words, this book contains valuable advice for businesses wanting to apply equity incentives.

Song XinyiA reader

In a company, what every employee wants is: "Win promotion and salary increase. Take up the position as general manager and then CEO. Marry the girl or boy in one’s dream." For those CEOs who had the same wished before, they care nothing more than how to maximum employees’ potentials with the cheapest and easiest way. Therefore, the so-called company is just a place where the boss and the employees "exploit" each other.


Committed to eliminating this "original sin", equity incentives comes into existence. On the one hand, employees get a sense of belonging in company. On the other hand, the boss sees higher profits along with higher work efficiency and higher quality. Win-win, isn’t it wonderful?


Therefore, in this era of nationwide entrepreneurship, equity incentives seems to be on the mouth of every boss, and more and more people start to pay attention to the research on equity incentives. There is such a book, with its title simple and eye-catching, and in just a few words, having its own banner: Redefined Equity Incentives! Of course, the author doesn't forget to add a limit to the slogan - the object of redefining are non-listed companies.


Note the signature of this book: Shanghai Song Haijia Law Firm (now Shanghai Song and Gu Law Firm).


Lawyers talk about equity incentives - isn’t it nonsense?


Lawyers and equity incentives? Isn’t the distance between these two words a little bit too far? Search these two keywords on the Internet, and the first result pops out is: "Equity incentives programs directed by lawyers are basically nonsense." The author of this article believes that "Management contains profound knowledge, with one half about science and the other half about art. Lawyers, as layman, should not intervene in equity incentives.” In a sharp contrast to this, one of the core concepts of this book is: “How could an equity incentive scheme work out smoothly without a lawyer’s instructions?!” But this contrast just explains a fact that equity incentives are not just management or legal issues. Regardless of which party you support, it is untenable to attribute equity incentives to a single discipline. The book breaks through the limitations of the lawyer profession – this is a book that considers equity incentives of non-listed companies from multiple perspectives such as management, psychology, and law.


Equity incentives: Law + Business Management, Case + Theory


Equity incentives span the field of law and management, and this book perfectly combines these two concepts.


For most people, the world after primary school is no longer either black or white. Everything in the world has its own advantages and disadvantages. Only by looking at things from multiple angles can you understand it thoroughly. That’s why analysis integrating cases, management theories and regulations has become one of the highlights in this book. For example, when referring to the core legal issues of equity incentives, the author uses the case of “Real Kung Fu” as an example in the book. By case analysis, a boring and abstract academic concept can be presented in the most intuitive way, and readers can get a deeper impression on similar cases which they can use for references when they meet a similar situation.


In the process of analysis, the author first puts forward the idea that “Incorrect corporate governance is a key factor in triggering shareholder disputes”. From the perspective of management, this view explains in detail that regulation of information disclosure, rules of procedure, and exit mechanism are prerequisites for the implementation of equity incentives in companies. For once again, it reminds readers to use management theories professionally and to retain employees with a considerable company system.


At the same time, the author also constructs a legal framework by using words like “a case linked with multiple cases” and “criminal responsibility” to emphasize the importance of preventing and controlling shareholder disputes in equity incentives. Using multi-angle analysis, the author explains the essence of equity incentives: the so-called equity incentives is just putting the crystallization of human resources management into a framework made of law and integrating both in an artistic way. Only by this can this system play its biggest role.


Listed company? Non-listed company?


Going back to the beginning where I said that the book has a manner of great speaking, claiming to redefine the equity incentives of non-listed companies. In fact, the author really makes it. The so-called "redefining" is the use of an unique multi-angle analysis. In addition, the author also explains the definition of “non-listed company”.


From the very beginning of the book, the author emphasizes the difference between listed companies and non-listed companies. For example, characters based on shareholders in non-listed companies plays a more important role than characters based on capital in listed companies. In the process of analyzing the specific implementation of equity incentives, the author gives corresponding opinions based on these characteristics of non-listed companies, instead of copying the listed company model in a general way. For example, when referring to the allocation of incentive objects, the author clearly states that it is not allowed to be rigidly attached to the rule in list company--"The total amount of incentive shall not exceed 10%, and a single incentive object shall not obtain more than 1% of equity". Instead, the rule should be "No maximum, no minimum." At the same time, it also clarifies the reasons: considering that the essence of equity incentives is the trade of human capital, the transaction can only be completed bewteen buyer and seller, not the boss's wishful thinking. Such an inspiring idea is not inspiring for its novelty, but for its rareness as one of few that is really written from the perspective of a non-listed company. Based on the flexibility and diversified characteristics of non-listed companies, it’s natural for managers to increase the incentives for professional managers to enhance their sense of security. This is understandable and reasonable. Compared with other books of the same type, the theme and purpose of this book is clearer, as it refines problems to the characteristics of non-listed companies, endowing the book with unique value.


A book with a "good figure"


In addition to the innovation and originality of the content, the structure of the book also helps establish its prominence among similar books.


When looking at a person, what most people first see is not his facial features and temperament but his height, size, and body proportion. A book is also like this. Only with a good structure can the reader be retained to savor its "features" and "temperament".


Redefined Equity Incentives: How to reward Non-Listed Companies Employees begins with an introduction of basic concepts of non-listed companies, and gradually leads them into specific situations, following an order from the shallow to the deep. Based on this sequence, the whole book consists of headline, subtitle and minute title. Although it sounds like too many titles, it subdivides the analyzed content and clears the way for readers. For example, “Adjustment and risk of equity incentives for non-listed companies” is a very big topic, which includes who can repurchase equity, conditions of repurchasing equity, prices of repurchasing equity, and so on. If you follow the traditional segmented writing, the reader may not have the patience to read all the intensive readings, and may have difficulties in finding the exact part quickly. Therefore, the book is subdivided into a number of representative sub-headings under a bigger headline, such as “Incentive shareholders’ loyalty and diligence obligations, and their qualifications”, which explains in detail if the incentive object fails to fulfill its obligations, it will have an impact on their qualification as a shareholder. With such a structure, the writing doesn’t deviate from the headline discussion about the risk adjustment of equity incentives, while perfectly taking care of the subtitles. Besides, when it comes to the cited laws and regulations, the author deliberately arranges the words into special fonts and presents them to the reader in the form of Bullet Points. This is to avoid long narrative by refining the essence at the same time highlighting the points. Overall, the book's concise and clear structure fits in its features as a reference book, providing readers with a book that can be freely viewed like a dictionary.


A book with "good temperament"


Redefined Equity Incentives: How to reward Non-Listed Companies Employees is more than a reference book. The semi-formal language style in the book adds fun to reading. For example, when it comes to the choice of motivational objects, the author first illuminates his point of view in an academic tone: the choice of motivational objects is something that cannot be quantified. In order to explain this abstract idea, the author gives a "three-points" principle that he summed up after being inspired by the professor, using an entire page for the example. Then he applies the analogy method to embody the "three-points" principle into the issue of mate selection. Although it does not explain the idea directly, it makes readers realize this truth from easy-to-understand examples, and tells a truth that there are scientific principles in simple experiences.


In addition, the author tries to avoid blunt academic vocabulary in the selection of words, and wants to make the article vivid without losing the seriousness of academic books. When he mentions the rate of disputes among shareholders of non-listed companies, he quotes a folk saying--“You know he will become a general or a thief from the way he acts in a young age”-- to describe the development status of non-listed companies, cooperating with the rigorous big data chart of shareholder disputes so that it reserves concise and professional in the same context. However, it is this combination that allows readers to understand the legal risks faced by startups in implementing equity incentives in a common language, and also supports the quoted proverbs with data. Readers can quickly understand that during the first three years of non-listed companies, to prevent the occurrence of shareholder disputes is of vital importance for implementing equity incentives. The language style is the core of a book. The style of this book is like a humorous old professor who can talk a joke containing far-reaching meaning at any time.


Just for decoration? Talking about practicability of this book


Suppose that you are a human resources expert, when introducing equity incentives to customers, you may tell them that equity incentives is a tool to solve the agency costs of professional managers. It's like a pair of gold handcuffs that can meet the physical and psychological needs of employees, giving them a sense of security. But things will never turn out as you wish; all incidents will be accompanied by conflicts and disputes such as the "derailment" of company executives, or "betrayal" of departing employees. Then as an expert in human resources, what is your golden advice?


As a lawyer, the author gives a definite answer: the essence of equity incentive law is conditional equity transfer or capital increase and share expansion. The core issue of equity incentive is to prevent and control shareholder disputes. Just as the book compares the shareholder relationship to marriage, it is important for the young couple to maintain their relationship, but now there are more and more people willing to sign an unromantic "prenuptial agreement", which illustrates that the soundness of the exit mechanism is one of the guarantees of security in marriage life. So is the company. Examples like the "Real Kung Fu", “Cnlight” are all alarm to the reader: in the face of money, personal emotions, and company interests will all make concessions. Now the conditional equity transfer or capital increase and share expansion agreement has become an effective weapon to guide the behavior of all parties, avoiding disputes to the maximum extent. This is what people often say "the dynamic adjustment mechanism of equity incentives."


After all the aspects about the book, I want to mention a comment I saw on the Internet: "This book is more theoretical than operational." So, what is the actual situation?


From a legal point of view, the author has answered this question – designing an equity incentive plan is to draft a "conditional equity transfer agreement or a capital increase and share expansion agreement". As mentioned above, the equity incentive program also involves human resources management, organizational behavior, psychology and many other disciplines. We all know that management is "abstract fantasy." Before you understand the psychological needs of potential incentives, even if there are hand-to-hand instructions on drafting a perfect equity transfer or capital increase and share expansion agreement, nobody can guarantee its effectiveness. The law can tell us how to handle the marriage procedures, but can't show us how to develop a love relationship. Equity incentives must have a "love" process. Problems like how to choose the incentive object, how much equity to grant, the exercise price, and what time to authorize are not what law can answer directly. It needs to be practiced, negotiated, and evaluated. This is a complicated and tricky problem with no certain rules. In my opinion, to inspire and lead readers of thinking rightly is the first step of learning. As the book says, "Equity incentive plan has to go through three stages of 'love, marriage, and married life'. As for how to choose objects, I believe that every lawyer and entrepreneur will have their own operation manual. 


A good book brings more than immediate or future benefits, and more importantly, it leads people to think deeply. The opening and conclusion words of this book are very intriguing: "Is equity incentives a necessity for every company?""Use equity incentives carefully! Equity incentives are the most costly and risky incentive tools. A smile, a compliment, or a challenging mission--these are all immediate low-cost incentives which are most easily overlooked by managers."

Yan Min

Equity incentives, for most people, are mysterious capital operations. As a professional, I am also curious about this. However, whether it is on the Internet or in the traditional paper book market, when it comes to "equity incentives," most of materials are about listed companies. Only occasionally, there are one or two shallow sentences about non-listed companies.


Redefined Equity Incentives: How to reward Non-Listed Companies Employees is another masterpiece of Shanghai Song and Gu Law Firm following Partners – Legal Issues on Shareholder Disputes. It focuses on equity incentives of non-listed companies and its main job is "redefinition".


The first thing to be redefined: This book underlines characters based on shareholders. It's written that the biggest feature of non-listed companies is their characters based on shareholders and they're not as open, which is obviously different from the characters based on capital listed companies. This feature means that if conflicts happen between shareholders of non-listed companies, it is often difficult for them to withdraw from the company by means of equity transfer, ultimately affecting the company's business development. This is particularly true in technology industry's "three-in-one" situation ---employees, shareholders, and human capital, which uses equity incentives as a common tool. Therefore, this is a factor that non-listed companies must consider before adopting "equity incentives".


The second thing to be redefined: The object selection of equity incentives should obey scientific rules. According to Maslow's Hierarchy of Needs, people's needs have different stages. In the same way, the objects to be motivated have completely different needs at different time periods. For example, some employees still need to support their families at a certain period. Compared with equity, they need a higher salary. Another example is that different employees have different contributions to the company at different stages. Whether to reward the senior employees and newly-joined talents without discrimination need careful consideration when formulating incentive programs.


The third thing to be redefined: Equity incentives need to be done at a fixed quantity. In simple terms, fixed quantity is the proportion to be given. This is not only an issue of equity, but also of fairness. For example, the book gives an example where a professional manager who has followed the founder since the company's inception, but his proportion of equity is only half of a new comer, a former Global 500 executive. In fact, this situation is not unusual. Equity incentives involve different proportion to different employees and whether it meets the expectation of employees. Among them, the procedural fairness of designing the incentive model is particularly important. As the "Social Exchange Theory" of Homans mentioned in the book, employees will compare their own inputs and productions with others'. If they think it as equal, employees will feel satisfied, otherwise they will feel unfair and be unsatisfied.


The fourth thing to be redefined: equity incentives are not static, but dynamically adjusted, because the shareholder qualification itself will change in reality for various reasons. More often is that the executives receiving equity incentives violate the agreement of no horizontal competition, thus triggering the terms of the repurchase; or the agreed performance appraisal standards are linked to the proportion of equity incentives. Equity repurchase involves the assessment of the value of the repurchase equity. Generally, if the shareholder triggers the repurchase condition due to his own fault, the repurchase price is easier to set.If the shareholder offers to request the company to repurchase as the conditions stipulated by the law are all met, the value of the share repurchase will often be disputed. In addition, how to deal with the equity after repurchase also need to be carefully designed in form of rules to avoid a stalemate when shareholders are all willing or unwilling to obtain repurchase shares.


"When we design our equity incentives with great care, who will motivate us? What do we to encourage ourselves?" The conclusion of this book properly sums up the gist of the book. Equity incentives start from equity and end in motivation. Only a perfect design can achieve perfect incentives.

Zhou Jie

In China, compared with the relatively mature equity incentives scheme of listed companies, the equity incentive mechanism of non-listed companies almost remains to be a white paper in both legislation and academic research. Non-listed companies have relatively weak governance capabilities, and are lack of equity incentives, and concrete and feasible operational procedures, so they often fail to achieve the desired incentive effect.


To this end, Redefined Equity Incentives: How to reward Non-Listed Companies Employees makes use of knowledge of economics, management, and law for above problems, and redefines the equity incentive system to enable incentive systems to achieve its required positive effects.


The first thing to be redefined: the effect analysis of equity incentives. Through the introduction of quantitative analysis, it is impossible to conclude whether equity incentives have corresponding positive effects. Then using Maslow's Hierarchy of Needs, it is concluded that equity incentives can meet Maslow's various levels of demand, and at the same time, it should be noted that the incentive effect only exists when the superior demand of object is met. For example, in one real case cited in the book, the real situation of the incentive object is he has neither house nor car of his own, his wife is pregnant but they are still renting a house. For such an incentive object the priority is to solve their economic difficulties through rewards, benefits and corporate loans, which will be more direct and effective than giving him equity.


The second thing to be redefined: analyzing the prerequisites for equity incentives. Because non-listed companies have the characters based on shareholders and are not as open as listed companies, this is why there are more shareholder disputes in non-listed companies than listed companies. To solve this, through the analysis of Maslow's Hierarchy of Needs and Robert's Rules of Order, the book believes that a prerequisite for an effective equity incentive plan must include a sound information disclosure system, and sound rule of procedure system to strengthen the trust relationship between shareholders. The exit mechanism can solve the problem of restricted stock circulation caused by mentions features, and it is easy to resolve shareholder disputes. By analyzing the characteristics of shareholder disputes and the case of "Real Kung Fu", it concludes that the lag and lack in the information disclosure system, the rules of procedure, and the exit mechanism in the governance structure of non-listed companies will trigger corresponding shareholder disputes, and have a corresponding negative effect on equity incentives. Therefore, the book proposes to improve corporate governance through its own "legislation" to meet the needs of equity incentives, so that equity incentives can play their positive effects.


The third thing to be redefined: To activate equity incentives by "legislating" on specific operational steps of equity incentives. There are several aspects to operate on:


For the selection of incentive objects, it is necessary to take into consideration non-listed companies' characters based on shareholders, how to define employees with superior demand and two-factor theory to comprehensively select incentive objects.


As for the issue of the total amount of incentives, the author holds the opinion that equity incentives has no limitation of the maximum proportion, but problems about control rights after the dilution of equity should be noted. In order to prevent the equity dilution control right from being contested, there are several solutions like Weighted Voting Rights, control of core assets, and appointment system for prevention.


To the incentive mode, the information disclosure system and rules of procedure have imperfection, which makes them unsuitable for the options. The value-added right will generate high tax costs and corporate financial costs for the incentive objects, and it is not suitable for the use of appreciation rights. Therefore, it is recommended to adopt the incentive model with restricted equity.


When it comes to incentive granting and taxation, equity transfer or capital increase and share expansion is usually used to grant equity incentives. As for the right timing, it is proposed to fully consider the company's net assets, and complete the equity transfer when the net assets are relatively low to reduce the tax cost. When the tax cost is relatively high, the object will contribute to the tax reduction through the capital increase and share expansion plan.


For dynamic adjustment mechanism and risk issue of equity incentives, since equity incentives are a conditional equity transfer contract, it must be noted that when the attached conditions are lost, adjustments should be made and risk control should be carried out in a timely manner. The book advocates that when the incited object show infidelity, the labor relationship is unbounded, the circumstance of inheritance occurs, the object loses labor ability and technical ability, or the performance appraisal is not up to standard, the shareholder relationship should be adjusted or cancelled in time. At the same time, when dissolving shareholder qualifications, it is necessary to design and arrange the pricing mechanism of the repurchase, such as resolving the corresponding shareholder disputes through the bidding mechanism and other methods, to take control of the related risks caused by the equity incentives.


Equity incentives start from equity and end in motivation. Only a perfect design can achieve perfect incentives.

Wang Le

"My life is limited but the knowledge is limitless." I read the book Redefined Equity Incentives: How to reward Non-Listed Companies Employees several years ago. I was just out of school then with little knowledge about life and career, and didn’t have much practical experience. So maybe that was why I didn’t have resonance with this book. Little did I learn from that book at that time. After working and studying during this time, I benefited a lot from the accumulation of practical experiences. When I read this book again, I felt that the book gave me more inspiration than before.


I was most impressed with the argumentation part of the conditions for equity incentives. Through the analysis of Maslow's hierarchy of needs and Robert's Rules of Order, the author believes that a prerequisite for an effective equity incentive plan is a perfect information disclosure system, rules of procedure, and exit mechanism. Then he continues by discussing the judicial practice of shareholder disputes and draws a conclusion that the existing information disclosure system, rules of procedure and exit mechanism of non-listed companies cannot satisfy the shareholders' protection needs of the company's right to know, shareholders' equal rights and investment income rights. To get this, he analyzes shareholder disputes related to the company in the "Provisions on Cause of Action for Civil Cases" with big data and find that top several causes exactly match with the "prerequisites".


Based on this analysis, the conditions of equity incentives and the main thread of non-listed companies' equity incentives have been clarified from the source, which has also triggered my thinking. Under the circumstance of the innately missing laws, is it necessary for non-listed companies to carry out equity incentives? If yes, how to meet the prerequisites for equity incentives? How to make full use of equity incentives? In practice, depending on the actual situation of each company, the answer will be different, but whether the company conducts equity incentives, to improve the information disclosure system, the rules of procedure and the exit mechanism is of great meaning for any non-listed company.


In order to discuss related issues, the book also cites a large number of shareholder dispute cases. Among them, the case of "Real Kung Fu" highlights the characteristics of the case of shareholder disputes as one linked with several, lasting for long time, and relating to both civil and criminal law. It reflects the lag and lack of information disclosure system, rules of procedure and exit mechanism in corporate law and non-listed company's governance structure.

 

In the "Real Kung Fu" case, Cai Dabiao and Pan Yuhai, who were originally family members, were interrogated in court for more than 30 lawsuits in 10 years to seize control of the company. The case was finally ended with Cai Dabiao's imprisonment. Pan Yuhai took control of the company, while its market capitalization shrunk dramatically. In my opinion, this case does not have a winner. The only results were the loss of family, the company's sharp depreciation, and the profit loss of investors. The root of the various results lies in the vulnerability of information disclosure system, the rules of procedure and the exit mechanism. These are all common issues in non-listed companies which deserves our reflection.


In addition to demonstrating the preconditions of equity incentives for non-listed companies and illustrating excellent cases, the book also describes in detail the operation details of equity incentives for non-listed companies, including the selection of incentive objects, the total amount of incentives, the choice of incentive modes, the dynamic adjustment of incentive process and related tax issues. After reading, I have gained a lot, but more problems still need to be dealt with in practice, which may lead to more profound insights.


All above is what I can get at this stage. It is often said that whenever you have another reading of a book you have read before, you will always find a new bright point, which will give you new ideas, and enable you to get new knowledge. I think this situation is also applicable here. More detailed discussions in the book remain to be savored in future work.

Wang YifanA lawyer from Shanghai Jia Mian Law Firm

During the weekend, I read the book Redefined Equity Incentives: How to reward Non-Listed Companies Employees, compiled by Shanghai Song and Gu Law Firm. My initial purpose was to learn "how to motivate employees of non-listed companies". To my surprise, this book fills me with enlightening new ideas as it summarizes and discusses many basic but essential equity issues. Its comprehensiveness is hardly inferior to any brilliant masterpieces, and deeply inspires me by its methodology of research.


The methodology embodied in this book makes me unconsciously compare it with the extremely popular "Yangming School of Mind", which is a classical Confucian doctrine, and let them corroborate each other. As far as I am concerned, this book fully embodies the three classical theories of "Yangming School of Mind": the unity of knowledge and action, the absence of things outside the heart, and the coherence between acts and conscience.


As far as I know, the "Yangming School of Mind" is a prominent science in Japan; this theory not only initiated Meiji restoration and realized the rise of Japan, but also became an important tool for post-war reconstruction; the Japanese business genius, Inamori Kazuo, the founder of Mitsubishi Group, Iwasaki Yatarō, the founder of Japan's National Bank and the industrial giant, Shibusawa Eiichi, the founder of Waseda University and former Japanese Prime Minister , Okuma Shigenobu, et al. found the way to build a commercial empire by deep study of "Yangming School of Mind". On the contrary, as the birthplace of "Yangming School of Mind", China only studies the theory on the level of knowledge, but does not turn it into merit. Many people are very puzzled about this, and have written many articles to explore its reasons from different angles, but in my own shallow opinion, this is because most of us have not grasped the "Yangming School of Mind" from a methodological perspective. Although I don't know if the author has deliberately studied the theory of this mind, his work perfectly embodies the methodological essence of the theory, so I suggest that fans of "Yangming School of Mind" read this pamphlet after "bowing down to Yangming all their lives".


First of all, let’s talk about "Integration of knowledge and action". This is no more than to pay attention to practice, and it’s not enough to "know" but to "do". Just like that even if you can recite the driving manual, but you have never driven on the road, you will not think you have learned to drive. It seems that everyone understands this theoretically, but it's not easy to put it into practice.


When it comes to equity incentives, my first reaction is that it's beneficial. In fact, the books I've read before also hold this view. They are so confident about this as if equity incentive is a golden key to the success of an enterprise. As long as there is a perfect plan to avoid some unnecessary risks, equity incentive can help your enterprise generate a magic.


However, this idea is questioned at the beginning of the book. The author also admits that equity incentive is superior in theory, but as a professional lawyer with rich experience in equity legal issues, the author does not stay at the theoretical level, but focuses on practice. By means of sampling and analysis, he studies the market data, but gets no conclusion that equity incentive has a positive effect on corporate performance. Then the author compares the differences between listed companies and non-listed companies, and draws a conclusion that non-listed companies with characters based on shareholders, cannot copy the incentive model of listed companies. Then, he makes a comprehensive analysis of "Real Kung Fu" with a case study. The case of equity disputes and data of various types of equity disputes in recent years are given. By using big data analysis, the important conclusion is drawn that non-listed companies generally lack the premise of positive incentive effects such as information disclosure system, rules of procedure, exit mechanism and so on. It is also pointed out that once equity disputes occur, the company resources will greatly wasted.


Given all these reasons, the author himself doesn't have a positive attitude towards equity incentives for the use of non-listed companies as the current mainstream view does, but gives a practical conclusion that equity incentives must be conducted carefully.


Except for his emphasis on practice, the author's grasp of human nature is also very enlightening. Psychology holds that "Nothing lives outside one’s heart", which means that our heart is the foundation of the world. If something can't affect one's inner world, it can be regarded as nihility from a certain point of view. Therefore, psychologists believe that our heart is often the root of many problems, which is called "gentleman's understanding of the source". This book emphasizes shareholders' character of non-listed companies and explores equity incentives on the basis of human compatibility. Its discussion of related issues is based on a deep grasp of human nature. In the deduction of the preconditions of equity incentives, the author points out that the reason why equity incentive can motivate objects is by satisfying the needs of objects at all levels in theory. However, the satisfaction of these needs has premises, namely, "the freedom of expression", "the freedom of investigation and research", "the freedom of defense" and "justice, fairness, honesty and order in the collective". From all above, we can infer that the preconditions of equity incentive are "information disclosure", "rules of procedure" and "exit mechanism".


When choosing the incentive object, the author tells us from the angle of human compatibility that the incentive object and the original shareholder must have the same vision and idea; then the author uses the two-factor theory to tell us that "welfare" is for everyone, while "incentive" is only for a few, and only by putting the incentive object in the "a few" area can produce incentive effect; and we must know how to identify priority needs of objects, and must find an effective way to motivate employees because equity incentives is not the only choice. This profound grasp of human nature runs through the whole book and is almost unique in the dull area of law books.Similarly, in determining the total amount of incentives, the author also points out, from the perspective of human nature, that under the reality that distribution can't be absolutely fair, we must make decision-making open, obeying fair procedures, so as to ensure no negative effects results from uneven distribution. This profound understanding of human nature is not only meaningful for equity incentives, but has significance for all businesses related to human resources.


Finally, the most impressive aspect of this book is that it always explores how to stimulate employees' positive mindset with no negative side effect, which is clearly the best application of the coherence between acts and conscience. Psychology holds that the highest level of learning is coherence between acts and conscience, which can be understood as exploring the good energy existing in human in today's words. In my opinion, other equity incentive articles talk more about how to avoid negative effects. Even the books I read about commercial law and economic law are almost all about avoiding risks from the negative side of human nature. These books can be summarized as "Making the course of nature existent and the desire of human extinct". Before reading this book, I never saw any legal book which spent so much energy to focus on the positive side of human nature.


This book puts forward many views on how to excavate the positive side of human heart and explore how to excavate and disseminate this positive energy. For example, on the issue of determining the total amount of incentives, the author thinks that light assets enterprises should treat suitable incentive targets "with no maximum limit" in order to fully mobilize the enthusiasm of talents; in the issue of determining incentive models, the author also points out that the option model can be used to stimulate positive expectations of the incentive targets; at the end of the book, the author emphasizes that entrepreneurs should "give full play to self-incentives" to disseminate positive energy. These penetrating conclusions are all based on the analysis of mobilizing the positive side of human nature, and are of profound significance.


Of course, the book also has some drawbacks. In order to make the reader read easily, the data graph is processed in brief strokes. But I personally think that once the data map is not designed according to present rules, readers will not have a good reading experience. Instead, I recommend inserting ridiculous cartoons to increase readability while maintaining the norm of data map.


As for the content, my reading experience is perfect. After reading this book, my resolution to being a lawyer is more determined. A good lawyer can prove his working methods with classical Chinese academic theories, which prompts me to think divergently about another question:


An excellent lawyer can promote the settlement of social contradictions, make some achievements in judicial practice, and summarize experience and write books for others to learn from: can it be understood as that the sage's height of Three things that last forever-- "Setting up virtue, great deeds, and then expounding one's ideas in writing" has already been achieved, and has stood on the high ground of the realm of life?

Zhou Yang

I was not familiar with equity incentives before reading Redefined Equity Incentives: How to reward Non-Listed Companies Employees. If someone asked me then, what is equity incentive? My answer might be: "By distributing the company's equity to employees, or setting up an employee stock-holding platform with employees as the LP, the company employees can hold the company's equity indirectly."


Is this answer accurate? Or is it comprehensive?


The moment I closed this book, I was thinking that the answer was already given in it. Equity incentives involve many ways, a lot of disciplines like law, management, psychology, and economics, and a number of factors like object, manner, time, and quantity. To answer the question in the first paragraph, even if I can't cover everything, the least essence of equity incentives should be given, namely "Equity incentives are a conditional equity transfer or capital increase and share expansion."


As a reader of this book, I feel like I am reading a novel, listening to the author telling a story. I really like this way of narrative, very interesting and not very difficult. As a beginner, this book is a good choice.


In addition, I also began to think about some issues, such as:

When the company has equity incentives, will employees work in the same way of employers? Not necessarily. The lower the proportion of a employee's equity, the less the power of incentive. Under this circumstance, it’s almost impossible for an employee to work like a boss and his laziness to work can’t be eliminated. The greater the incentive, the closer the employee thinks himself to the boss, and the more enthusiastic and hardworking will he be in work.


When the company has equity incentives, will employees work willingly and spontaneously? Not necessarily. Equity incentives are long-term incentive models, while many employees are more concerned with the current values and interests. Therefore, to motivate employees to work voluntarily, the company should consider a combination of long-term and short-term incentive tools. When the company has equity incentives, will it do a better job on retaining employees? There is a psychological point of view that people tend to rely on the power of expectation on two aspects--one is external expectation, and the other is self-expectation. When these two are in balance, man will be most motivated; when these two are imbalanced, man will suffer from torture. I think that this view can be used to explain the problem. For middle- and high-level management employees, effective equity incentives represent the company's expectations of employees (ie, external expectations), since managers themselves have high expectations for themselves, so it's easy to keep the two in same. These two expectations are easy to approach each other and even agree. Therefore, equity incentives can keep the core team of the company relatively stable and enhance the sense of belonging of employees.


I have a lot of questions that need solving in the future work and learning process.


In addition to some reading experiences and thoughts, here is some of my confusion and suggestion for this book:


1. The opinions are scattered and the structure of the article can be re-adjusted.


As mentioned above, I really like the organization using cases as a starting point, which is of great fun, and contains knowledge from different disciplines with large volume of information and rich content. It does give readers vast knowledge but the point might be missed. This problem is mainly in the first and second section about the "Effect" and "Risk". The reason may be that there is no clear core in article. Maybe some of the content is derived from a courseware handout so many valuable ideas are scattered in various parts, leading to the rough writing. So I think the structure of the article may need to be adjusted.


2. Big data can be retrieved by using official data or on an open big data platform.


In this book, the statistics from "Shanghai Song and Gu Law Firm's Big Data Real-Time Measurement System on Shareholder Dispute Litigation" appear many times, and some conclusions are drawn on this basis. Since I have done big data case studies before, I verify the results several times with search tools I used before. For example, the 52 page of this book refers to results of the judgment of the national shareholder's right to know disputes from 2002 to 2015 and the total number of cases adds up to 2,191; I used the "Wolters Kluwer" case library and inputted search keywords "shareholders' right to know dispute”, setting the trial date “from January 1, 2002 to December 31, 2015", non-limited trial level, and the type of the document as "judgment, rule, mediation, decision", etc. The number of cases retrieved was 3,899. On page 54 of this book, the results of the 2011-2015 national company license return dispute decision are mentioned. The number of cases is 416. I used the "Wolters Kluwer", and inputted keywords "company's license return dispute", with trial date "from January 1, 2011 to December 31, 2015", non-limited trial level, and the type of the document as "judgment, rule, mediation, decision", etc. The number of cases turned to be nearly 600.


My search results may be inaccurate, but this remains as a question. Although this does not have a fundamental impact on the final conclusion of the article, it's objectivity that makes the data persuasive and strongly supports the conclusion. Accurate data can give people a sense of more authoritative and professional, so I think it's better to use open official data or searching platform.


3. Judicial Interpretation of the Company Law IV


This book was published in 2016 and repeatedly mentions the contents of the Four Drafts of the Judicial Interpretation of the Company Law. When the book is revised, it can be updated to the Fourth Judicial Interpretation of the Company Law issued and implemented in 2017.


4. Something else


This book has a few wrongly written errors. For example, on page 55, the Provisions of the Criminal Law amended in 2009 on tax evasion should be "a relatively large amount" rather than "amount of more than 10,000 yuan". The total number of samples on page 9, "Total of samples: 29940" shown in Figure 1.7 should be "Total number of samples: 29140".


Finally, I am very grateful to Mr. Song for giving me this book. On the one hand, it helps me to understand the business direction of the law firm. On the other hand, it inspires my thinking. We can always get different ideas from every reading of the same book. In the future, I will consciously cultivate the habit of reading more and thinking more. Mr. Song is my tutor on "equity incentive", thank you!

Chi Yi

I feel honored enough to read this book and write this post-reading feeling. All these start from my first meeting with Mr. Song.


I first met him in a training class. I saw the name of Song Haijia in the introduction column, followed by the title--a lawyer in company law and tax law. At that time, my understanding of professional lawyers was superficial, and I thought that being a professional lawyer meant to handle cases in only one or a few law fields. Later, I had exchanged talkswith Mr. Song and it was through his ways of speech and deportment I really understood what a professional lawyer was, and how to become a truly professional lawyer. At that time, I was only impressed with Song's courseware with only a few words on each PPT, different from other teachers’ courseware filled with words. I tried to take down any words he said and thought to myself that he was afraid of being copied by others to present such a simple PPT. Aw, is the competition between lawyers as fierce as that?


Although I learned hard, I found that if I couldn't use it in my work, time was the best eraser. Two years later, I received a task to give class about corporate governance to some clients. I thought that was an easy job since I took the class of a professional in this area. With that in mind, I took out the courseware of Mr. Song to review it. But I was only to find that all I remembered was his good sense of humor and nothing of the expertise left. I felt flustered, and had no choice but to prepare whatever I could remember and look for all relevant information and cases. But the more I wrote down, the less confident I felt about my presentation. After two days of self-torture over the weekend, I came to realize that it was a mission impossible for me to finish this in such a short time. I got panicked and then I saw the phone number left by Mr. Song on the courseware. The idea of consulting Mr. Song came into my mind. When you are in face of something extremely urgent, you would shed all concerns. I made the call and Mr. Song answered. I didn’t expect Mr. Song to give me detailed information about this. After all, I was talking about his professional field, and might quote his research results. If I was him, I would not do that either. But to my surprise, Mr. Song took my request seriously, and gave me elaborate advice. With his help, I completed my task successfully. That was when I got to know about Mr. Song and I was ashamed of my shallow conjecture, but at the same time I admired and appreciated his professional attitude, and his honorable style. It was this conversation that made me deeply understand what is a professional lawyer, why to be a professional and how.


In order to help me further understand the background knowledge of the lectures, Mr. Song gave me a book, Redefined Equity Incentives: How to reward Non-Listed Companies Employees, to help me on my lectures. When I opened the book and started my reading, I had an illusion as if I was talking face-to-face with the author. Everything in the book has the sear of his unique expression. Sometimes it is relaxing and makes funny analogy; sometimes it leads readers to think; sometimes it cites various authorities; sometimes it gives careful argument-- the book explains equity incentives in a simple and accurate way, exposing to us the real features under its mysterious mask. However, if you think you can become an expert after reading this book, you may be a little impatient; if you want to get a universal model to plan equity incentives, you may be disappointed, because this book tells you there are things worthy, and right and unworthy and wrong, instead of a firm assertion that equity incentives is something necessary.Both lawyers and entrepreneurs lay emphasis on practicality, which is quite understandable. But if we don't consider comprehensively about possible risks, and the reasons behind them, rash practice of equity incentives will be a disaster to both shareholders and employees. This is the focus of this book. It tells readers more about equity incentives itself but also whether to do it or not, and why.


I think to judge whether a book is worth reading, there are three criteria. First, whether the author has his own unique insights. Second, whether the content is reasonable for the proportion of "Tao" and "Tool". When there is only methodology argument, readers would feel it's too abstract to understand; when there is only operational advice, the book will become a guidebook with no value of reading. Third, whether the structural arrangement is reasonable and logical. The book is worth studying because it meets all three points:


First of all, unlike other experts, the author doesn't take the routine of listing all the advantages and effects of equity incentives. He proposes pertinently that not all enterprises are suitable for equity incentives, and points out risks and drawbacks. He gives cases and data to support his idea. Refreshing views different from others' perspectives in combination with real case data makes readers want to know why this is happening and why businesses spend plenty of time and energy on equity incentive plan but without expected outcomes. The author analyzes these from the perspectives of law, psychology, and economics, helping readers to see the core of equity incentives through its mysterious mask. Nothing could be more valuable than exploring the essence of things. We can really understand it and use it after knowing its essence. Otherwise, it would be like looking at flowers in thick fog and watching the moon reflected in water--you will never distinguish between the reality and illusion. Once the conditions change, you cannot find your direction any more.


Secondly, if this book only analyses relevant aspects of equity incentives of non-listed companies from the legal level, readers will feel very boring. If it only gives the template of equity incentives of non-listed companies from the practical level, equity incentives will become a pipeline product. As to whether it can meet the needs of enterprises, I think the answer is self-evident. This book is based on Maslow's Demand Theory to discuss the role of equity incentives in motivating employees, pointing directly to human nature. This "Tao" can be understood not only by lawyers and entrepreneurs, but even middle school students. It can express the meaning and function of equity incentive accurately and clearly in the simplest words, and simplify the complex things. This reflects that the author has been engaged in equity research for many years and lays a solid foundation through hard work. It is through years of in-depth research that the author realizes that equity incentives is not a pipeline business which could be solved by several templates. It is a "tailor-made" business that requires entrepreneurs and lawyers to have a profound understanding of the "Tao" of equity incentives, and to take different development concepts, stages and prospects of each enterprise in to account, instead of turning to a template that can be used everywhere. If you really understand the "Tao" of equity incentive, the "Tool" of equity incentives scheme is ready for use. If you want a shortcut and grad a template for every situation, this template will not solve your problems, but become a time bomb in the future development of the enterprise. Short-cut paths are always the most difficult ones to follow up.


In addition, the structure of this book is closely based on the premise that a non-listed company's equity incentives plan can only play its role, when there are perfect information disclosure system, rules of procedure, and exit mechanism. He firstly demonstrates the core of the program implementation to readers, and then starts to talk about the object of incentives, the amount, the mode, and the cashing method. In this book, there are no templates that some people want, but only organic modules. If you understand the principles and application rules of these modules, you can use them to match with target companies. This book does not provide any templates. I think it is the author's intention to do so, because this will allow creative professional lawyers and entrepreneurs to practice freely. Someone who dares to break through the original model  the propelling force pushing the whole society forward.


This is what I think after the first reading of the book. Thanks to Mr. Song"s encouragement and guidance for the opportunity to write my feelings about the book out in one go.

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