The Pain of Brain Drain: Survival Crisis Behind 20% Turnover Rate

In early 2023, a construction engineering company undertaking multiple key projects fell into a development quagmire. On the surface, the project delivery quality was repeatedly criticized, but the root cause lay in the continuous loss of core talents — **the annual turnover rate of project managers reached as high as 20%**.

In the construction industry, project managers are the key link connecting the company and projects, and their stability directly determines the project quality. Faced with the continuous loss of the core team, the company's management realized that simply retaining talents with salaries has become a thing of the past, and it is necessary to launch a deeper equity incentive plan. However, the dilemma in front of them made them hesitant to make a decision: if the incentive intensity is too small, it cannot truly retain talents and win their loyalty; if it is too large, they fear equity dilution and loss of control rights.

Solution: Finding the Golden Balance Between "Incentive" and "Control"

On February 15, 2023, the company officially entrusted our firm, hoping that we could tailor an equity incentive plan for it that can effectively motivate core employees while safeguarding the controlling rights of founding shareholders.

After accepting the entrustment, our team conducted an in-depth research on the characteristics of talent flow in the construction industry, project operation mode and the company's existing profit distribution mechanism. We found that the traditional "one-size-fits-all" equity grant method is difficult to adapt to the "project-based" operational characteristics of the construction industry. The real breakthrough point lies in the in-depth binding of individual contributions, project benefits and long-term equity interests.

Innovative Design: Dual-wheel Drive of "Project Co-investment + Equity Binding"

Based on the above insights, our team creatively proposed a composite incentive model of "project co-investment + equity binding", dividing 5% of the incentive equity into two dimensions to grant to 12 core employees:

1. Risk Sharing: 30% of Equity Requires Cash Subscription

Breaking the inertial thinking of "free equity grants", employees are required to subscribe for 30% of the incentive equity shares in cash. This move not only screens out talents who are truly willing to be bound with the company for a long time, but also makes employees participate in project management with a "investor" mentality to achieve risk sharing.

2. Performance-oriented: 70% of Equity Linked to Project Profits

The remaining 70% of the equity is strongly correlated with the profit margin of the projects personally responsible for by employees, with a three-year vesting period:

• Assessment Indicator: Achieve a project profit margin of more than 8% for three consecutive years
• Vesting Mechanism: Corresponding shares are vested upon meeting the standard for one year, and all shares are fully vested if the standard is met for three consecutive years
• Repurchase Guarantee: The unmet portion will be repurchased by the company at the original value to ensure that equity does not remain in the hands of inefficient contributors

Risk Control Closed Loop: In-depth Coupling of Non-compete Restrictions and Equity Income

To prevent non-compete risks after the loss of core talents, the plan innovatively set a clause of "coupling non-compete compensation with equity income" in the articles of association:

• During Employment: Normally participate in equity dividends
• After Resignation and Compliance with Non-compete Restrictions: Can continue to receive dividends according to the vested proportion as economic compensation for non-compete restrictions
• After Resignation and Violation of Non-compete Restrictions: Forfeit all unvested rights and interests, and return the dividends already received

This design transformed non-compete restrictions from "post-event accountability" to "interest-driven", greatly enhancing the actual binding force of the clauses.

Meticulous Implementation: Data Deduction and Institutional Supporting Ensure Feasibility of the Plan

The innovation of the plan must be based on the foundation of implementability. During the plan design phase, our team carried out solid quantitative deduction and institutional supporting work:

Scenario Simulation: Value Calculation Under 15 Performance Assumptions

We built the "Equity Value Calculation Model" to simulate the changes in equity dilution ratio and employee income under different performance achievement scenarios, intuitively showing shareholders:

• Under the most optimistic scenario, the incentive effect is maximized
• Under the most conservative scenario, the control right remains intact
• Under the intermediate scenario, the interests of all parties are evenly distributed

Control Right Locking: Scientific Separation of Voting Rights and Dividend Rights

In response to the major shareholders' biggest concern about control rights, the articles of association clearly stipulate: "Equity incentive equity does not enjoy voting rights at shareholders' meetings, only dividend rights and transfer rights." This means that no matter how the incentive equity circulates, the decision-making power on major matters is always firmly in the hands of the original shareholders.

Institutional Supporting: Implementation Rules Ensure Long-term Operation

The simultaneously formulated "Detailed Rules for the Implementation of Equity Incentives" refined assessment indicators, vesting processes, exit mechanisms, etc., one by one, to ensure that the plan has rules to follow and evidence to rely on in future implementation.

Successful Conclusion: From Unanimous Shareholders' Vote to Full Employee Signature

In March 2023, this innovative plan passed two key hurdles one after another:

• Shareholder Level: Approved by unanimous vote, completely dispelling the founding shareholders' worries about control rights
• Employee Level: All 12 core employees signed the confirmation, and the cash subscription link was successfully completed

Value Realization: Witnessing Incentive Effects in Half a Year

Just half a year after the implementation of the plan, the company's talent and operation data showed significant improvements:

• Greatly Improved Talent Stability: The turnover rate of project managers plummeted from 20% to 5%
• Significantly Optimized Project Quality: Project profit margin increased from less than 8% to 10%
• Obvious Enhancement of Team Cohesion: Employees shifted from a "worker mentality" to a "partner awareness"

Benchmark Significance: Providing a Standardized Model for Labor-intensive Enterprises

The successful practice of this case has explored a feasible path of "daring to incentivize and being able to control the overall situation" for labor-intensive industries such as construction engineering. It deeply integrates complex equity theories with industry characteristics, and uses mechanism design to solve the inherent tension between "incentive and restraint" and "delegation and control", becoming another classic case of our firm in the field of non-litigation services for enterprise equity incentives.