Abstract: According to the theory of system managemen,t the incentive system, a sub-system of firm system subordinates the law ofentropy increase. An incentive system produces incentive entropy during its operation, resulting in a decrease in incentive efficiency. Therefore, incentive entropy can be used asmeasurementofdynamics of an incentive system. An incentivewarningmechanism was established to provide firmswith a method to optimize their incentive systems in the right time by observing the changes and the time of the changes of incentive entropy. The incentive system for the high administrative levelofa firm is the key to thewhole incentive system, and it isdependenton the initial state. Through the“butterfly effect”, the whole incentive system can be improved by raising the efficiency of the incentive system for administrative level.