Abstract: After clarifying the effect mechanism of managerial equity incentive on the product innovation ability, we using the case study of Shanghai Jahwa, analyze the effect of the power game between controlling shareholders and management on the motivation of managerial equity incentive contract design, and the effect of different design motivation on the product innovation ability. We find that, the problem of insider control caused by either the management or the controlling shareholders will make the managerial equity incentive contract as the tool for self-interest insider to seek private gains, and this will reduce the investment of product innovation, in turn to damage the transforming ability of product innovation to the profitability. The implementation of equity incentive only in the environment of controlling shareholders to play a monitoring role can improve the product innovation investment and the transforming ability of product innovation to the profitability.

Key words: equity incentive motivation, power game, product innovation, internal governance structure