Who is the Real Innovator: Executive or Core Employee?——Evidence from the Relationship between Human Capital Incentive System and Firm Innovation
Zhejiang University of Finance and Economics
How to optimize the human capital incentive mechanism to improve firm innovation has become one of the hottest topics on corporate governance and corporate finance. By comparing the core employee stock ownership plan (ESOP) and executive equity incentive, this paper attempts to answer who is the main innovator in firm innovation. Focusing on the implementation of the core ESOP and executive's equity incentive plans in the nonfinancial listed companies of A-share from 2006 to 2015, this paper mainly answers the following questions: Can core employee stock ownership plan improve firm innovation? Compared to the executive equity incentive, whether core ESOP is the main innovator of the incentive effect of firm innovation? What is the influence path between core ESOP and firm innovation? We show that (1) the core ESOP can improve the ability of firm innovation; (2) the incentive effect of the core ESOP is significantly higher than that of executive equity incentive; (3) Compared to the equity incentive scheme, the core ESOP can reduce the agency costs between executives and core employees, and improve firm innovation by narrowing the pay gap between core employees and executives. These results are helpful to find the source of firm innovation in theoretically, and to provide theoretical basis and policy references for the promotion of the implementation of core ESOP in Chinese mixed ownership companies.
- CEO Equity Incentives, Core ESOP, Firm Innovation, Compensation Dispersion