Exclusive Interview with Yixinxiangshang: The Upper Limit of the Equity Incentive Plan is to Understand Human Nature Well

In 1956, the Peninsula Newspaper Company in California, USA, launched an employee stock ownership plan. Employees could purchase company stocks without reducing their salaries or using their savings. This plan not only enhanced employees' sense of belonging but also enabled the company to achieve more stable development. This became the prototype of the enterprise equity incentive plan.

Nearly 70 years later, equity incentive has obviously become an important tool for enterprises to boost morale, attract and retain core talents. However, enterprises constantly encounter new problems in the process of designing and implementing the plan. Some companies are troubled that they have shown enough sincerity in the incentive, but employees fail to feel the value of the incentive. Some other companies haven't realized that equity incentive is a "hidden money - gulping beast". An imprudent incentive plan can not only affect the company's cash flow but also potentially impact its subsequent listing.

This year is the fourth year that Yixin Xiangshang has continuously released the annual research report on equity incentive. As a well - known one - stop service provider for equity incentive in the industry, in the "White Paper on the Panorama and Trends of Equity Incentive Practice in 2025" jointly released with 36Kr, it provides a guide for enterprises to break the deadlock in equity incentive from a three - dimensional perspective of "full - market coverage + full - process breakdown + full - scenario implementation". On November 26th, Yixin Xiangshang also shared the core rule differences for enterprises listing on the A - share, H - share, and US - share markets, as well as exclusive market insights and key practical points in a live broadcast with 36Kr.

After the live broadcast, we had a chat with Tan Shan, a senior consulting partner of Yixin Xiangshang. As a senior expert with more than 10 years of experience in equity incentive and the writer of this annual report, Tan Shan shared the common confusion of enterprise founding teams regarding equity incentive plans, how to design incentive plans more systematically in the early stage of an enterprise, the basic characteristics that a good plan should have, and the possible new trends of incentive plans under the wave of technologicalization, internationalization, and business diversification.

Common Confusion of Enterprises: How Can Employees Recognize an Incentive Plan?

36Kr: What are the three most frequently asked questions by founders and executives you've contacted regarding equity incentive?

Tan Shan: Firstly, how to make employees feel and recognize the value of the equity incentive released by the company; secondly, how to effectively and reasonably allocate equity incentive resources, considering that the incentive resource pool is limited; thirdly, mainly for non - listed companies, people are more concerned about how to handle the equity incentive that has been released if an employee leaves the company.

36Kr: What problems are they urgently concerned about behind these questions?

Tan Shan: All companies care about how employees can feel the value of the incentive. This problem can be viewed from two aspects. First, any incentive plan should be based on the strategy, and then the equity incentive plan follows. In many cases, employees have an unclear understanding of the company's future development path, do not recognize the company's business model, and do not think the company is valuable. It is then difficult for them to feel the value of the equity incentive. We suggest that companies clearly describe the strategic path before implementing the plan to make employees recognize the company's value first.

Second, continuous and effective communication is very necessary in the process of designing and implementing the plan. Some founders are troubled that they have released a lot of resources to employees at a low price, but employees still don't buy in. Enterprises should not only let employees see the basic logic behind the plan but also let them feel the company's "sincerity".

36Kr: What reference suggestions do you give regarding the disposal of the given incentives after an employee leaves the company?

Tan Shan: Enterprises tend to go to extremes in handling this issue. One extreme is being too nice to employees. Even if an employee leaves, the company will repurchase the incentive equity at a good price. In this way, employees may want to get a good return by leaving the company, which may trigger a chain reaction of resignation runs, having a great impact on personnel stability and the company's cash flow.

The other extreme is that the company is too tough. Once an employee leaves, the company will take back the equity at zero price. Then employees may realize that if the company doesn't go public, the incentives in their hands will have no value, and they won't feel good about it.

Therefore, the disposal of employees' departure should be adapted to the market and the company's management orientation. It should not only fully stimulate people's goodwill but also take into account the malicious side of human nature. So the setting of the incentive plan needs to comprehensively consider several factors, including the incentive orientation, employees' feelings, and the company's cash - flow payment ability, and find a balance among them.

36Kr: What common blind spots do enterprises generally have in equity incentive?

Tan Shan: Some companies may think that compliance is everything. They believe that the plan is just a simple matter of dividing the cake and that as long as it is legally compliant, the matter is simple. But in fact, equity incentive is a very diverse and complex problem.

Some companies only consider the present, but equity incentive is a long - term matter. The incentives granted now may take five or even ten years to realize. During this process, various situations may occur, such as strategic direction adjustment, talent structure change, and the change of the equity structure from domestic to overseas. So when formulating the plan, the company should also dynamically consider its future possibilities. What is reasonable at present does not necessarily mean long - term suitability.

36Kr: What basic characteristics should a good incentive plan have?

Tan Shan: A good plan must be the result of considering multiple parties' games. It can be divided into several aspects: whether shareholders are willing to release enough equity, whether employees buy into this mechanism, and whether the company can accept the corresponding management costs and share payments. It involves an understanding of finance, taxation, law, equity structure, human resources, etc.

We compare formulating an equity incentive plan to building a house. Laws and regulations are the foundation, determining the bottom line of the whole plan; finance and taxation are the pillars, affecting the whole body; a comprehensive understanding of people and business is the upper limit. The ultimate goal of our plan must be to stimulate people's pursuit of future value and ensure that the behaviors in the business development process are consistent with those of the shareholders. We need to keenly judge how employees will react and behave under a certain mechanism.

Regarding Incentive Design: Only Start Considering When Feeling the Pain

36Kr: At what stage should a company start to consider the equity incentive plan in detail?

Tan Shan: The earlier, the better. Some technology companies need to attract high - end talents from the very beginning. The earlier they consider it, the more pitfalls they can avoid later. But not all enterprises can realize these pitfalls at the beginning. They will only start to carefully consider the scientific design of the plan when they feel the pain.

36Kr: What is the first pitfall that enterprises generally realize?

Tan Shan: Some companies may distribute incentives widely at an early stage. When they need to incentivize more excellent employees later, they find that the incentive resources are insufficient. Another problem is the issue of departure and exit.

36Kr: What proportion of the incentive pool is more reasonable for a company to reserve when formulating the plan?

Tan Shan: For startups, the reserved incentive pool at the beginning may range from 10% to 40%, but the range reflects the differences in different industries, as well as the talent structure and talent market price required by the industry. For example, the initial incentive pool of an AI company may be more than 30% because it needs more resources to attract talents.

There are also some external factors, such as the suggestions of VCs and the style of the founders. But most enterprises will refer to some industry benchmarks when determining the size of the incentive pool.

36Kr: What preparatory work should be done before formulating the incentive plan, or what aspects of information should be sorted out or frameworks should be set up?

Tan Shan: The most fundamental question is whether the company has clearly thought about its future development path: How to develop the business direction? What are the future strategic goals? What is the purpose of the incentive? We don't recommend that a company blindly formulate an incentive plan without clearly thinking about or explaining the company's goals to employees.

Secondly, it is necessary to determine the incentive orientation, that is, the goal to be achieved through equity incentive. Some companies aim to retain core employees, some to achieve a business goal, and some to attract external talents. Different orientations lead to different overall plan designs.

Thirdly, clarify the company's future capital path. If the incentive plan cannot be adapted to the company's listing direction and ultimately affects the listing, it will be a great loss.

Fourthly, it is related to human resources. All plans target people. It is necessary to understand what kind of talent team the company needs under the corresponding business and capital development paths, as well as the improvement and implementation rhythm of human - resource - related supporting measures.

Finally, understand the company's management characteristics and corporate culture. Each company has its own characteristics. Identifying them in the early stage can help formulate an incentive plan more suitable for the company's long - term development.

36Kr: How will the equity incentive plan differ with different incentive orientations?

Tan Shan: For example, some companies clearly aim to retain core talents. In the early stage of screening incentive recipients, a relatively strict standard may be needed. After the screening, a relatively higher amount can be given at one time, but the performance - achievement conditions can be set more leniently. For example, if other companies distribute incentives over four years, giving 500,000 each year, we can give 2 million at one time and then let it vest over four years. The latter will definitely have a higher retention rate for employees. The underlying logic here is "loss aversion". Employees will have a higher cost of leaving the company because they are afraid of losing the "already - obtained" value.

If the goal is to attract external talents, more comprehensive market data support is needed to understand the pricing of top talents in the industry, so as to give a suitable grant ratio and grant price to ensure that the equity - incentive compensation package is more attractive. At the same time, the plan should also consider the company's cash - compensation mechanism. Although equity incentive and cash compensation are two different modules, they are an overall value for employees.

36Kr: How will an unreasonably designed plan affect the company's subsequent listing?

Tan Shan: Take a simple example. Net profit is an important threshold for an enterprise to list on the A - share market. If a company plans to list on the A - share market, it needs to have an annual profit scale of at least tens of millions during the reporting period. But the implementation of equity incentive not only affects the cash flow but also the profit statement. After all, the value transferred to employees will be fully borne by the company. If the company's equity is worth 10 yuan and is given to employees at 1 yuan, employees get a premium of 9 yuan, and the price difference will be borne by the company's profit statement, directly reducing the company's profit, which may affect whether the company meets the profit standard for A - share listing.

36Kr: The more common incentive tools are options, restricted stocks, restricted stock units, and stock appreciation rights. Which incentive stages or scenarios are they more suitable for respectively?

Tan Shan: Incentive tools can be generally divided into two categories. The first category is equity - redemption type, where the company needs to give employees real equity, including options, restricted stocks, and restricted stock units. The second category is cash - redemption type, where the company doesn't need to give real equity but needs to pay corresponding cash for redemption, including virtual equity and virtual appreciation rights.

The cash - redemption type of incentive method requires that the company either does not want to or does not have the conditions to use real equity resources, and the company needs to have sufficient cash flow. Only when these two prerequisites are met will we recommend using this incentive method.

In terms of equity redemption, early - stage companies generally reserve an incentive resource pool mainly based on option incentives. If the future plan is to adopt an overseas structure, options can be directly carried over after overseas listing. If they plan to go for H - shares or A - shares, options can be converted into employee stock ownership after exercise. Options are very flexible and can be adjusted. As the business develops, options will gradually transition to restricted stocks. In recent years, some Hong Kong and US - listed companies mainly use restricted stock units, while A - share listed companies mainly use restricted stocks or the second - type restricted stocks.

36Kr: What is the general basis for the grant pricing of equity or options before listing?

Tan Shan: First, it is necessary to judge the fair value of the enterprise according to the industry or company characteristics.

AI or biotech companies are more active in the primary capital market and have frequent financing activities. Their financing valuations may be used as the pricing basis. Consumer companies don't finance very frequently, but they have good profitability. Usually, their net assets are used as the pricing basis.

After determining the fair value, then consider the price for employees, which has a relatively large relationship with the capital path.

If a company plans to list on the A - share or H - share market, it will probably adopt employee stock ownership before listing. It is necessary to see whether employees can afford the capital - contribution cost. Because employees need to fully purchase the corresponding shares before listing, the company needs to consider both the employees' payment pressure and the company's cost - bearing pressure, as well as the timing of capital contribution and grant. All these will affect the expenses the company needs to bear and employees' feelings.

If it adopts an overseas structure, such as for Hong Kong - listed or US - listed Chinese concept stocks, employees don't need to complete the capital contribution before listing. The pricing can basically refer to the financing valuation with a certain discount.

36Kr: When the incentive mechanism is applied to individuals, how to avoid the situation of "not worrying about scarcity but about inequality"?

Tan Shan: Frankly speaking, there is no completely fair distribution mechanism in the world. We can only pursue relative fairness within the manageable management cost.

First, it is necessary to comprehensively consider some influencing factors in the mechanism distribution to ensure a fair judgment of people. We all hope to quantify as much as possible, but there must be some qualitative parts in the process. Specifically, we need to make a judgment based on the company's management style and management cost.

Second, "inequality" is due to "transparency", but the information of equity incentive is not suitable for excessive transparency. Therefore, we need to do reasonable information - disclosure management on the premise of relative fairness.

For non - listed companies, especially some early - stage companies, it is quite taboo to issue stocks to employees for industrial and commercial registration at the beginning. Some information should be avoided from being disclosed too early.

In response to this situation, Yixin Xiangshang's SAAS system has developed a Cap table function, which can manage the impact and changes of equity incentive on the equity structure in real - time without industrial and commercial registration, assisting the company in information management.

New Changes in Equity Incentive Brought by Internationalization, Dual Listing, and New Business Incubation

36Kr: What possible trend changes may occur in the design of equity incentive plans in the future?

Tan Shan: Firstly, the diversification of incentive tools. In the very early days, companies may have used options before listing, especially those with an overseas structure. Now, companies will match different incentive tools according to different business development needs and talent structures.

For example, some companies will adopt cash incentive tools such as virtual equity and stock appreciation rights. After all, people have a deeper understanding of equity incentive and will match different incentive methods according to different development states and talent profiles.

The design of equity incentive plans will also be related to the general trends of enterprise technologicalization and internationalization. Some enterprises have greater demands for high - tech talents and overseas talents, and more considerations will be given to them when formulating the plan.

The incentive for overseas employees is more complicated. Local corporate culture, policies, and tax rules need to be considered, and the plan design requirements are higher.

36Kr: At the company level, which department should have a professional understanding of overseas tax rules, option - vesting schedules, etc.?

Tan Shan: Frankly speaking, it is difficult for anyone within the company to have a comprehensive understanding. The finance and legal departments are more familiar with local tax regulations, and the human - resources department is more familiar with plan distribution and corporate culture. If a company formulates an incentive plan for foreign employees internally, it may need a team to support it.

As a third - party, Yixin Xiangshang also needs to have a comprehensive understanding of all aspects. But