Research On Executive Stock Option Incentive Based On System Dynamics

From the phenomenon of executive turnover, the paper analyzes the causes of executive turnover by using the interpretive structural modeling method, and draws a conclusion that under the conditions of relatively sound management rules and regulations, perfecting the incentive mechanism is an effective way to avoid the risk of executive turnover in enterprises. Based on the above discussions, we point out problems of perfecting the incentive mechanism.As a long-term incentive mechanism, stock incentives, because of its own outstanding advantages, has been paid more and more attentions in academic and corporation field of China. At present, there are a lot of empirical researches on the relationship between stock incentives and enterprise performance in the theoretical circle. But, because these conclusions have great differences, there is no general agreement about the relationship between them. In practice, setting the reasonable proportion of managerial ownership and performance targets is always the difficulty in designing the plan of stock incentives. But, there are not many researches on it. Based on that, in view of the dynamics characteristics of the interaction system of stock incentives, the paper establishes system dynamics model for stock incentives by using system dynamics theory. On that basis, we analyze the dynamic relationship of stock incentives and enterprise performance, and explores the reasons of the diversity relationships between stock incentives and enterprise performance. Finally, we propose the implementation plan of setting the reasonable proportion of managerial ownership and performance targets. This study provides the scientific basis for implementing successfully and effectively the stock incentives in our enterprises. The main research achievements are as follows:(1) Aim at the branch vector matrix algorithm for searching feedback loops, we construct the quantitative indexes system of feedback loops based on the new feedback loops in system.(2) By analyzing the essential relationship between the set of system elements and the corresponding directed graph, this paper analyzes the basic principle of hierarchy division method in Interpretive Structural Modeling. The analytic results show that the elements in the top-level set correspond to the sinks of the directed graph in a directed graph with no cycles. Hence, the system elements can be decomposed into different levels by directly finding out the sinks through condensation matrix, which can directly lead to the hierarchy division method in the Interpretive Structural Modeling Method Working on Matrix.(3) Based on the dynamics characteristics analysis of the system of stock incentives, This paper establishes a rate-variable fundamental in-tree model for the system of stock incentives. On that basis, we analyize the system of stock incentives by using the matrix generating method of 2-order minimum archetypes, the branch vector matrix algorithm for searching feedback loops and the quantitative indexes system of feedback loops. First, through the matrix generating method of 2-order minimum archetypes, we analyze the interaction system of stock incentives, and obtain that the whole structure of system belongs to the limits to growth archetype. We put forward the corresponded management policy to provide some referenced measures for successful implementation of the stock incentive. Second, by using the branch vector matrix algorithm for searching feedback loops, we have 170 new feedback loops in enterprise human resource management system after the implementation of stock incentives, and analyze these feedback loops qualitatively. Third, by using the quantitative indexes system of feedback loops, we analyze 170 new feedback loops quantitatively and comprehensively. We determine the critical variables in the system of stock incentives, and found that the stock incentives has the greatest influence on enterprise performance. We quantitatively interpret why the increase of enterprise performance not only can be aggrandized strongly by stock incentives, but also can be restricted strongly by incentive costs. Moreover, we reveal the correlation between stock incentives and enterprise performance, and compare this results with results of some present empirical analysis, which are about the relationship between stock incentives and enterprise performance. Fourth, based on system dynamics theory, this paper analyzes the dynamic characteristics of the system of stock incentives, and explores the reasons of the diversity relationships between stock incentives and enterprise performance. The results show that the previous studies have neglected the soft variables related to stock incentives, the delayed effect of stock incentives and the transfer of the leading role loop in stock incentives system. Aim at the reasons, the paper puts forward some suggestions and implications.(4) Based on system dynamics theory, the paper establishes system dynamics model for stock incentives, and simulates stock incentives in the information technology industry by using the modeling software of the system dynamics. On that basis, the paper studies the relationship between stock incentives and enterprise performance, and draws conclusions:using cumulative enterprise performance to identify the stock incentives and enterprise performance relationship and the reasonable proportion of managerial ownership is more reasonable; the reasonable proportion of managerial ownership is relate to the validity period of stock incentives, the different validity period of stock incentives corresponds to the different reasonable proportion of managerial ownership; there are inverse U shape and power function relationships between stock incentives and cumulative enterprise performance. Finally, we propose the implementation plan of setting the reasonable proportion of managerial ownership and performance targets. This study provides the scientific basis for implementing successfully and effectively the stock incentives in our enterprises.