Analysis of Losing Talents and Incentive Theory in Economics
--Shenhuo Group in Henan as an Example
Shuo Hao1, Wei-min Cai2
1
The Postgraduate Department, Tianjin Polytechnic University, Tianjin, China
Department of Management, Tianjin Polytechnic University, Tianjin, China
(Haoshuo1988@163.com)
2
Abstract - The purpose of this paper is to discuss the
solving methods of losing talents in Shenhuo Group and
other state-owned enterprises by analyzing the problem of
losing talents in Shenhuo Group. Incentive theory in
economics was applied to establish an effective incentive
system for Shenhuo Group. What could be seen by analyzing
Shenhuo Group was that incentive theory in economics was
effective for solving the problem of losing talents. However,
this theory would be more effective in practical application
when combined with incentive theory in management. There
is a significant use for reference not only to Shenhuo Group
but also to those state-owned enterprises which existing the
problem of losing talents. Direction of the development of
human resource management theory is to absorb the
economic theory of motivation.
established. But new incentive theory in economics is not
well absorbed [4-6]. The author thinks that one direction of
human resource management development is to absorb
incentive theory in economics. Domestic economic
incentive theory emphasizes more to incentive problem
research of senior manager while less to staff [7][8]. The
research in the future should be based on the present
theories and be cases of successful enterprises in applying
property incentive. The proper incentive ways to all kinds
of enterprises should be found. By research of incentive
theory and analysis of losing talents in Shenhuo Group, the
scheme of solving the problem of losing talents in
Shenhuo Group is offered as theoretical support. The ratio
of losing talents is decreased. The development and
competitive ability of Shenhuo Group is enhanced.
Keywords - losing talents; incentive theory in
economics; incentive mode; state-owned enterprises
II. MAJOR INCENTIVE THEORIES IN ECONOMICS
I. INTRODUCTION
The problem of losing talents in Shenhuo Group
limited company (Shenhuo Group as follows) in Hunan
province was aimed at. Incentive theory in economics was
applied to propose effective incentive modes for Shenhuo
Group which was extended to other state-owned
enterprises which existing losing talents. The purpose was
to solve the problem of losing talents in Shenhuo Group
and other state-owned enterprises, to lower the costs of
recruiting, choosing hands and retention. At present,
talents are not valued enough in state-owned enterprises
and are easy to lose. An amount of distinguished talents
are going to non-state-owned enterprises resulting that
state-owned enterprises lack of talents and need to
improve the bad situation[1-3]. The problem of unsatisfied
employees and losing talents in Shenhuo Group is severe
and needs solving. The research of losing talents is the
requirement of development of Shenhuo Group.
Theoretical support and advice is provided for effective
incentive, employees' activeness, finding talents,
developing talents, retaining talents and lowering human
resource costs. Meanwhile, other state-owned enterprises
are beneficial to improve incentive system. Foreign
incentive theory in economics illustrates the importance of
human resource to enterprises as human resource property,
entrust-agency relation and relevant beneficiaries’ theory.
Staff incentive theory based on management summarizes
that human resource management in development forms
recruiting, training, performance evaluation, staff
incentive, staff salary, etc. Mature theoretical system is
Firstly, human resource property incentive
theory: human capital is used to provide future income
compared with material and non human resource and is
the benefit and the increasing abilities gained in economic
activities. As far as Schurz is concerned, human resource
is attached to human and is the combination of
knowledge, skills and strength. Human capital is formed
by most effective investments and is the major source of
economic growth [9]. This theory asserts to let intelligence
investors owe a part of property. They concern more
about long term benefit, which is good for sustainable
growth of enterprises. Knowledge becomes the source of
value in intellectual economy era. Intellectual staffs who
are the carrier of knowledge should have a part of
property of enterprises and be offered value distribution
[10]
.
Secondly, stakeholders’ theory: the objective of
enterprises is not just limited by maximizing the profit of
shareholders, but to take the profit of other corporate
participants into consideration in the meantime. To
maximizing the profits of all the stakeholders is the goal
which modern corporations are pursuing. In the modern
capital market, shareholders become scattered and
negative, use feet bit to transfer risks, and undertake fewer
obligations. On the contrary, other stakeholders,
especially intellectual employees, have closer benefit
relation. The loss of core human resource means the
bankruptcy of enterprises. With the growing negotiations
of human resource factors, all stakeholders will share the
system arrangement of corporate ownership together, and
manage the corporation equally [11].
Thirdly, entrustment--agency theory: those who
master less information are called consignors in incentive
theory, and the opposite are agents. The main
achievement is entrustment--agency theory and model
applied analysis mainly deal with unsymmetrical
information and incentive problems in corporate structure.
"Team production" theory is raised which holds the idea
that corporation is a typical team production. Other
achievements include raising the concept of agency cost,
which means that agency cost is the determined factor of
corporate ownership structure. Letting the operator be the
owner of total surplus equities can decrease, even remove,
agency costs. The importance of surplus claim in solving
corporate incentive problems is emphasized.
Fourthly, unsymmetrical information problems:
on the one hand, reverse choice of choosing talents and
incentive matters means that the chosen ones are not the
most excellent or suitable people. On the other hand,
ethical risks, which means that the chosen people do work
hard. The ways to solve the problems are: (1) to establish
good selecting system aiming to select suitable agents by
forming competition among agents; (2) to form a good
incentive system aiming to make agents continuously
work hard to the consignors' goal by meeting two
principles: participating constraint principle and incentive
compatible constraint principle.
III. THE SHENHUO GROUP INCENTIVE MODEL
A. Background
The Shenhuo Group is large state-owned
enterprise groups, which owns coal, power generation,
aluminum production and deep processing of products. It
is one of the Chinese top 500 enterprises. There is a
serious problem currently, mainly for the loss of highly
skilled personnel.
1) The status quo of talents loss in Shenhuo
Group: (a) Loss of high skilled talents: among all the
technical and skilled laborers in Shenhuo Group,
technicians and senior technicians only take up 4% of the
total amount, while what the corporation needs is 14% of
that, the difference is 10%. This has become the
bottleneck to prevent corporation from upgrading.(b)
Heavy loss of potential talents: the potentials of most of
the newly recruited graduates are not properly found. 40%
of the graduate laborers suggest that what they do is the
same as other workers, not only labor some but also not
showing their expertise. They cannot learn any
professional knowledge. They have lost the passion to
apply for Shenhuo Group. Instead, they come up with the
complaints and the thoughts of job-hopping.
2) The cause of talents loss in Shenhuo
Group:(a) Low payments: compared with either powerful
multinational corporations or thriving private enterprises,
the incomes in Shenhuo Group are far too low. It cannot
meet the value anticipation of corporate internal talents to
themselves under the condition of market-oriented
economy. (b) Irrationality of payment distribution system:
the disproportion of talents' labor and gains is prominent.
The drawback of payment structure in Shenhuo Group is
the excessive consideration of laborers' qualifications and
less concerns of laborers' capabilities, difference not
widening, level not showing, hardly presenting the
difference of the good and bad, intense equalitarianism.(C)
Lack of development space of talents, lag of talents
system: this is caused by leaders' neglect and official rank
standard. Leaders do not respect talents, do not care about
their work and do not provide talents with good working
environment. Talents do not what to do and cannot realize
their value in career. When continuing to introduce talent,
corporations cannot fully provide effective development
space and environment to maximize talents benefits.(d)
Lack of scientifically rational performance appraisal
system: the performance appraisal in Shenhuo Group does
not have clear goal and principles. The methods are
improper, appraisal and assessment standards are simple,
specific appraisal methods cannot be applied to the right
things. This appraisal system has seriously reduced the
laborers' initiatives and talents cannot play their roles in
their work, leading to low productivity, waste of human
resources, and the most important is loss of talents. (e)
Bad development of human resources: Shenhuo Group
lack of effective systems of talents development and
training. It is short of the concept of talents career life
design and affected by the traditional system of personnel
management, making the most of workers have little
things to do and the most of things be done by nobody.
Human resources are dramatically wasted. At present, the
phenomenon of severe promotion according to status still
exists in the selection and appointment of talents, which
restrict the standout of excellent talents. (f) Hard to form
the rational formation of talents: the loss of some business
elites and skilled technicians whom the corporation used
to train makes the corporate operators be worried about
the training and further education of present workers. The
consequence is that the whole business level of present
coal workers is difficult to be improved and that the
rational formation of higher, vantage and primary
technicians is difficult to form.(g) Operator's short term
behaviors: the operator's appointment in Shenhuo Group
is still administrative. The promotion of positions rather
than the rise of contributors' benefits are valued. The short
term behaviors are easy to exist, unwilling to long term
incentive invest in human resources. (h) Deviation in
talents concept: talents concept in the eye of people
always stays in the old and narrow pattern. Only the
leaders, the experts and the high title and high education
background people are referred as to talents. They are
high valued and more cared. As to the most professional
workers who stay in their position and make contributions
are excluded from the concept of talents because of
lacking of the so-called conditions. They have
comparatively bad treatments and high pressures. The
narrow concept of talents severely decreased the
enthusiasm and the creativity of most of the professional
workers. It is these professional workers who are the loss
of Shenhuo Group.
B. Effective Incentive to Improve the Status of the Brain
Drain
1). Building operators incentives: the ability of the
business operators to work, personal qualities, a code of
conduct, and work attitude can affect the enthusiasm of
entire corporate staff and determine the survival and
development of the company, so the operator is the
primary incentive object. The state-owned enterprise
operator is state-owned assets agent, grasping the whole
information and controls the rights. The Shenhuo Group is
facing the lack of real assets client and strong regulatory
agencies. Establishing incentive measures has the
important meaning to guard against the group agent risk
and to prevent the loss of state-owned assets. The
company should construct operator incentive-restricted
mechanism from different aspects according to the
enterprise operator expectations and its special position.
The concrete measures include:(a) Establishing operator
target motivation :target incentives for operators in
Shenhuo Group can determine the responsibilities and
tasks of the operators and incentive compensation in the
next few years according to the actual situation of the
macro-market environment, industry development and
corporate calendar year operating conditions, an annual
basis or operator of the production cycle to the
enterprise's development goals, such as the designation of
enterprise production and the growth rate of corporate
profits and other key performance indicators. The
specified target of target incentives for operators will be
the main pressure and momentum for operators. Clear
incentive to operators to achieve the goal is a measure of
the performance of the business operators and can provide
a direct basis for managerial compensation.
Implementation of the objectives of the operator’s
incentive should pay attention to the next. First, goalsetting should be reasonable and necessary to fully
consider the characteristics and the present situation of the
industry, trying to make the target specific and digital to
understand and implement easily. The second is to
strengthen the supervision to prevent operators from
tampering with the financial data in order to complete the
assigned objectives.(b) Improving the salary incentives
for operators :the companies could improve the incentive
pay of the operators, according to the principle of
combination of fixed income and risk, short-term income
and long-term revenue and paid in cash and material
subsidies. The company also could establish a variety of
methods of distribution of the remuneration system,
making the operators pay management market-oriented
and international .Operators’ incentive, pension plans,
jobs and spending plans. The Shenhuo Group can choose
a different pay mix in proportion to the development of
their enterprises characteristics, operators, material
incentives.(c) Making full use of market of professional
managers to select personnel for Shenhuo Group: the
manager market operators have the role of incentive and
restraint. Manager markets evaluate the performance of
operators and individual ability to achieve effective
supervision of the operators through the market
mechanism, and also use the strong reputation incentives
of the manager market, providing a good environment for
the cultivation of elite entrepreneurs. The Shenhuo group
should reform the traditional specify business system to
make full use of the market law of value and the talent
competition mechanism to select excellent professional
managers.
2) To build the employee-incentive system:
managers of the Shenhuo Corporation should make a
comprehensive understanding of the employees' demands
and expectations before carrying out the motivation
program. For different employees, different incentive
strategies should be taken to achieve a good incentive
effect. Second, managers should correctly handle the
relationship between the motivation and performance. The
corporation must establish a sound management system of
human resources by carrying out systems of clear post
responsibilities, reasonable employment and fair appraisal
and setting specific objectives to ensure the effective
implementation of the incentive system. Also, attention
must be paid to team incentive. The speculative lazy
behavior of individual employees must be reduced and
put organizational synergy into effect. The managers also
should actively increase the team reward; introduce
performance competitive systems between teams and
improve reputation of an excellent team. The following
are the specific employee-incentive measures. (a) Material
incentive: establish reasonable salary system and improve
the effectiveness of material incentives. The salary should
not only be the compensation or material reward for work,
but also be fair, scientific and motivational. The wage
level should be of the same consistent with others of the
same occupation, for a too high or a too low level will
both affect the staff morale. Managers should improve the
performance appraisal system which links salary with
performance. Egalitarianism should be opposed. For
employees who are outstanding in performance, specific
reward regulations should be made for them. They should
also concern about the life quality of their staff and
enhance welfare incentives modestly. The Shenhuo
Corporation should show concern employees and increase
affection with them through a variety of welfare systems,
such as paid holiday, housing subsidies, health care and so
on. (b) Spiritual incentive: the spiritual incentive to the
staff should mainly reflect the concept of corporation's
respect for the staff and the people-oriented spirit.
Spiritual incentives mainly include: to establish a
reasonable employment system on the basis of fair
competition to create a good space for employees; to
design reasonable career plans for the staff and ensure
open and democratic opportunities for promotion, and
take enough consideration and give support to
management technical talents in key positions; to actively
provide staff with training and learning opportunities to
improve the overall quality of staff and create a learning
environment in the corporation, to those who improve
work efficiency by learning and actively carrying out
technological innovation, reward and promotion are
necessary. To establish a good corporate culture,
interpersonal relationship of mutual equity and mutual
trust between managers and employees should be
developed. Besides, to advocate unity and cooperation
among employees and proactive attitude will also
contribute to a good corporate culture.
IV. CONCLUSIONS
In the era of knowledge economy, intellectual
capital is becoming the first element of competition; the
importance of human resource management is
increasingly highlighted. However, the state-owned
enterprises are behind the trend in the competition for
talent. It is an indisputable fact that especially the brain
drain of key positions will be business losses. From the
current incentives, measures and offence, the strategic
thought still does not fully manifest itself. It is not yet out
of the passive situation of "heavy use of light inspire”.
Through the research of the theory of incentives and put
forward the talent incentive scheme through analysis brain
drain problem of Shenhuo group ,to solve the brain drain
problem of the group provide theoretical support,
effective to reduce the proportion of brain drain,
accelerate the pace of development of Shenhuo Group and
enhance international competitiveness. It shows the
principle of economics incentives for talent loss is very
effective, but combine to the principle of management
incentives in the actual use would be more effective.
Direction of the development of human resource
management theory is to absorb the economic theory of
motivation.
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