In China, There Are Many Forms of Enterprise Organization

In China, there are many forms of enterprise organization. There is state-owned enterprise, private enterprise and so on. As far as I can see, each form uses different ideology to resolve agency conflicts. I will choose the private enterprise as my example to answer the question.

In China, the private enterprise uses the first ideology which is providing incentives to executives for good behavior. I will take Vanke Co.,ltd as the example. Founded in 1984, China Vanke Co., Ltd. began to engage in real estate in 1988, and was the second listed company on the Shenzhen Stock Exchange in 1991. Through the development of more than two decades, Vanke has become the largest residential developer in China, Vanke takes three strategies to incentive the manager to executives for good behaviors.

Firstly, Vanke disperses the equity to maintain the corporate ownership relationship. Vanke let the manager to exercise the stock option. Stock options are believed to align managers’ goals with shareholders’ goals because stock options give managers incentives to manage the firm in such a way that its stock price increases. If the manager wants to get more profit, he will try to achieve the shareholder’s goal. This is precisely what shareholders want.

Secondly, managers in Vanke take the rights to manage the company. The manager has the right to decide what to do or not to do. At the same time, the shareholders could support the manager’s work and cooperate with the development of the company. It makes the enterprise has been operating on the marketization and specialization of benign path.

Thirdly, Vanke exercise the base Salary and bonus to incentive managers. The base salary of Vanke is usually determined by comparing with firms with similar size and nature of operations-usually the focus is mostly on industry norm..At the end of every year, managers often receive cash bonuses whose size is computed based on the performance of the firm