Nonlinear Analysis on Firm Incentive System

The theory of management system looks at organization an open system consisting of many subsystems. Being a very important part of firm system, incentive system has direct influences on firm value creation. Interactions of system internal forces and external forces characterize the incentive system nonlinear attributes. This paper analyzes nonlinear relations between incentive inputs and system dynamic behaviors by constructing models, and explains the chaos phenomenon existing in incentive system. Results show that firm can get incremental value from optimal adjustment to system inputs by using the sensitive dependence on initial conditions; and firm can avoid dangerous system behaviors by effectively managing the chaos attractor. This analysis can inspire firm to exert vitality hidden in nonlinear incentive system, and lead system to successful evolution.