 for innovation and practice of the governance model of Zhuhai private listed companies.

Source of Shares
There are three main sources of stocks for our country"s listed companies to carry out equity incentive plan. They are respectively directional private placement, shareholders" transfer and repurchase from secondary market. In some listed companies, the diversity of the patterns of their equity incentive plans leads to the diversity of the resources of the stocks. 100 According to table 3-3, the stocks that Zhuhai private listed companies apply in their equity incentive plan are mainly from directional private placement, with 13 of the sample companies applying taking up 59.09%, followed by shareholders" transfer, accounting for 31.82%. Companies with a mixed stock resource are Patel and Yuanguang. Their stocks are respectively from a mixture of shareholders" transfer and directional private placement and a mixture of directional private placement and repurchase from secondary market. In conclusion, directional private placement turns out to remain the most popular kind of stock resources. Reason could be that it cost less than the other resources, such as repurchase from the secondary market which is supported by a large sum of funds. However, the directional private placement would dilute shareholders' shareholding ratio and particularly do harm to large shareholders who have control over the company, while repurchase from secondary market wouldn"t bring about such problems because it wouldn"t change the shareholding ratio but the shareholding structure.

Validity Period Distribution
Generally, the stock incentive in the listed companies of our country will expire in 4 to 5 years. If the validity period is too short, there will be no long-term incentive effect and the encouraging objects may even cheat to achieve the performance index. But too long of the period will also lead to troubles in predicting the company"s development trend and orientation in the future, which is harmful to the setting of suitable performance index. 100 Data from table 3-4 shows that 7 listed companies of all the sample companies set their validity period as 4 years, which form the largest proportion namely 31.82%. The second largest proportion, which is 27.27%, is taken up by 5-year validity period. There are 7 companies" validity period is unsure, among which 3 companies remain at board planning stage, 3 companies" equity incentive plans have passed resolution of shareholders" meeting but have not yet put into effect, 1 company has already implemented the equity incentive plan. Reason for the uncertain validity period could be that the companies need to adjust its validity period according to the practical situation to achieve long-term incentive effect.

Methods
Livzon Pharmaceutical Group Inc., founded in 1985, is a comprehensive pharmaceutical enterprise integrating development and research, production and sales of pharmaceutical products. With its headquarters building located in Zhuhai, the registered capital of Livzon Group is 533 million yuan. After finishing reform of its shareholding system, Livzon Group became the first A and B shares listed companies in the pharmaceutical industry in china.
Livzon Group is committed to independent research and development, production and sales of Chinese herbal medicine material, medicine and traditional Chinese medicine, medicinal cosmetics, health products and biochemical drugs. All the 53 production lines are compliant with GMP requirements and the marketing enterprise has successfully passed the national GSP certification. The group has showed up in the investment top 10 and management top 10 of Chinese listed enterprises, and comprehensive strength top 50 of the Guangdong pharmaceutical industry. Innovation is Livzon Group"s core concept, which is aiming at increasing R&D investment, continuously improving the quality of products and launching products with core competitiveness to maintain its advantages.
Modern corporation system separates enterprise ownership from managerial authority, leading to the principal-agent problem. The principle-agent problem is a dilemma exists in circumstances where agents are motivated to act in their own best interests contrast to those of their principals, and is an example of moral hazard and adverse selection under information asymmetry.
Livzon Group drafted the Restricted A Shares Incentive Scheme in 2004, and formally implemented it in 2005. The shares under the Scheme comprise the Company"s A Shares to be issued to the Incentive Participants. Under the Scheme, Restricted Shares of 10,000,000 A Shares will be granted to the Incentive Participants, representing 3.38% of the Company"s 295,721,852 total number of Shares when the Scheme is signed, among which 9,000,000 shares will be granted initially, representing 3.04% of the Company"s total number of Shares and 90% of the total number of Restricted Shares to be granted, and 1,000,000 shares will be reserved, representing 0.34% of the Company"s total number of Shares and 10% of the total number of Restricted Shares to be granted. The Validity Period of the Scheme shall commence on the Date of Grant of Restricted Shares and end on the date on which all the Restricted Shares granted have been unlocked or otherwise repurchased and cancelled, with the longest period no more than 5 years. Incentive Participants under the Scheme shall be the Company"s directors, mid and senior-level management, core technical (business) personnel, and relevant staff eligible for incentives in the opinion of the Board, but excluding independent directors and supervisors, add up to 484 participants.
The Date of Grant is on 11th November 2015. The price of initially granted Restricted Shares shall be RMB25.20 per share, at which the Incentive Participants may purchase the Restricted Shares of the Company specially issued to them after the conditions for granting are met. Restricted Shares shall be locked up immediately upon granting. The Restricted Shares granted under the Scheme shall have 12 months Lockup Period commencing from the date of grant. During Lockup Period the granted Restricted Shares are non-transferrable on the secondary market. The unlock arrangement for initially granted Restricted Shares is set out as below: Commencing from the first trading day after expiry of the 36-month period from the initial Date of Grant and ending on the last trading day of the 48-month period from the Date of Grant The conditions for unlocking include performance target at company"s level and requirements for individual performance. The "growth rate of net profit" shall be calculated on the basis of the net profit attributable to the Shareholders of the listed company after the deduction of non-recurring gains and losses. For the initially granted Restricted Shares, the performance targets for the respective year are specified as follows: Second unlock period On the basis of the Company"s net profit in 2014, the growth rate of net profit in 2016 shall not be lower than 38%; Third unlock period On the basis of the Company"s net profit in 2014, the growth rate of the net profit in 2017 shall not be lower than 73%. During the Lock-up Period, both the net profit attributable to the Shareholders of the Company and the net profit attributable to the Shareholders of the Company after the deduction of non-recurring gains and losses shall not be lower than the average amount in the recent three accounting years prior to the Date of Grant and shall not be negative. If the conditions for unlocking are not satisfied in the period, the Company shall repurchase and cancel the Restricted Shares that can be unlocked during that year pursuant to the Scheme.
At individual level, if the performance of an Incentive Participant in the last year is A/B/C, the performance of such an Incentive Participant shall be deemed as "pass" and such an Incentive Participant may unlock the corresponding proportions that can be unlocked by that individual Incentive Participant according to the performance result in the last year. If the performance of an Incentive Participant in the last year is D, the performance of such Incentive Participant shall be deemed as "fail", Company will, pursuant to the Scheme, repurchase and cancel the proportions of Restricted Shares granted to the Incentive Participant that may be unlocked during that period.

Financial Situation
Livzon Group announced its Restricted A Shares Incentive Scheme on October 2015, and the Date of Grant is on 12th November 2015. The first unlock period expired on 11th November 2016, and 171 employees had fulfilled the performance appraisal standard, unlocking 498,560 of the limited sale stock share (account for 0.12% of the total share capital of the company). The employees who failed the repurchase appraisal would be granted restricted stock.  Livzon Group raised funds by private placement of A share in 2016, which caused the proportion of shareholders" equity in the total assets to raise. Although the Liquidity ratio didn"t show a rapid increase, there was a huge improvement in the Quick ratio and the Currency ratio. With the Slower-changing inventories have decreased compared to the faster cash money, the short-term solvency of Livzon Group has been greatly improved.
The year after the Restricted A Shares Incentive Scheme being adopted, the Livzon company reduced the loan to the bank and had its interest expenses cut. There was a slight decrease in the Asset-liability ratio and the Equity multiplier, while the Times interest earned increased obviously from 3069.86 in 2015 to 18672.6787 in 2016 (about six times over). These were results of the joint effect of the reduction of the interest cost and the significant improvement of the performance index.
The rate of return on equity of the group is 8 percentage points higher than the industry average, a little lower than the same period of the last year. The DuPont analysis method can be used to analyze the change of net assets yield: The promotion of the Equity multiplier is more obvious for the reduction of ROE. The Equity multiplier reflects the financial leverage of a company. In the first year of the scheme, there was a