The Impact of Equity Incentive on Financial Performance: A Case Study of China’s Xiaomi Company

Abstract

In the context of escalating global competition within the technology sector and an intensifying battle for talent, equity incentives have emerged as a pivotal instrument for attracting and retaining elite professionals, extensively embraced by leading technology firms. Following Xiaomi’s initial public offering in 2018, the company rolled out 17 equity incentive schemes, encompassing more than 15,000 staff members, with both the scale and cadence of these initiatives substantially surpassing industry norms. Nevertheless, equity incentives present inherent drawbacks, including the dilution of shareholder equity and the potential for myopic managerial decisions. The core components of equity incentive design, namely intensity, target demographics, and modalities, exert a profound influence on financial outcomes, necessitating investigation.
This research employed a mixed-methods approach, integrating qualitative and quantitative analysis, with Principal-agent Theory, Motivation Theory, and Human Capital Theory serving as the core analytical lenses. By systematically analyzing Xiaomi’s financial statements and related operational data from 2018 to 2024 through qualitative interpretation and panel data models including descriptive analysis, correlation analysis, and robustness tests, the study aimed to dissect its unique dynamics of extensive equity incentives amid strategic shifts to ecosystem services. The objectives were as follows: (1) To verify that the equity grant ratio can enhance Xiaomi’s financial performance. (2) To verify that executive incentives can enhance Xiaomi’s financial performance. (3) To verify that the RSU (Restricted Stock Unit) and performance stock mixed model can enhance Xiaomi’s financial performance. The research process involved an in-depth case analysis guided by the theoretical framework and the construction of panel models to accurately identify the net causal effects of incentive design adjustments.
Based on the empirical findings, this study proposes the following targeted optimization suggestions: (1) Implement a tiered and dynamic equity incentive grant system;(2) Differentiate incentive structures to align with the strategic contributions of different talent groups; (3) Strategically select and combine equity.
In summary, through a systematic analysis integrating theory and empiricism, this study not only reveals the financial impact mechanisms behind Xiaomi’s extensive equity incentive strategies but also proposes actionable optimization pathways across three dimensions: incentive intensity, target demographics, and incentive models. These recommendations provide specific directions for Xiaomi to improve its financial performance and serve as a theoretical reference and practical guide for other technology enterprises facing similar challenges, holding significant practical importance for enhancing overall talent management and financial efficiency in the industry.

Keywords: equity incentive, principal-agent theory, motivation theory, human capital theory, financial performance

6717195002 Yang Zihan, 2568 (2025). Advisor: Dr. Zhang Li, สารนิพนธ์ (Independent Study), The Impact of Equity Incentive on Financial Performance: A Case Study of China’s Xiaomi Company, นำเสนอในที่ประชุมวิชาการ (Conference), The 18th National and International Academic Conference 2025, ปริญญาโท (Master’s Degree), บัณฑิตวิทยาลัย (Graduate School), Master of Business Administration, International Business Management, Siam University, Bangkok, Thailand – มหาวิทยาลัยสยาม กรุงเทพมหานคร ประเทศไทย