The Incentive Mechanism Of Executive Stock Option

The present dissertation, with about 39,700 words divided into four chapters, use relevant mechanisms as well as legislations in the United States and other countries for reference to probe into several important problems about the juridical mechanism of Executive Stock Option (ESO) with the theories of economics and jurisprudence and the methodologies of comparative and demonstrative analyses.Chapter One analyses some juridical concepts related to stock option as well as their juridical relations from a juridical perspective, and then further analyses the characteristics and functions of the executive stock option and the inspirations from the implementation of ESO in countries like the United States. The author suggests that ESO is an effective incentive mechanism to avoid moral hazards and converse choices and is of importance for modern corporation management.Chapter Two analyses the theoretical foundations and legal grounds that ESO is based on from the economic and juridical perspectives. ESO, as a mechanism popularized in western countries, can find its theoretical grounds in such fields as economics and jurisprudence. The separation of ownership and controlling interest, together with the decentralization of shareholders results in the weakening of their ability to control the company and the increasing interests conflicts between the shareholders and the company managers, which, in turn, make ESO an effective mechanism for the company to handle and maintain the interests balance between shareholders and company managers.Chapter Three illustrates the reasons why ESO could produce incentive effects and the legal relations between ESO and modern company management mainly through the economic and juridical analyses of the ESO operation. Hereby, it comes to the conclusion that ESO is an effective legal mechanism to prompt company executives and to manage a company. Since mechanism operates according to the elementary function of price, when the executives hold the stock options, their own interests are closely related to the interests of the company, which is reflected in the market price of the company's shares. The market performance of stock price is closely related to the operation of the company, which is closely related to the management of the company.Chapter Four includes some reflections on the pertinent legal system of ESO carried out in China. There will be furious conflicts with the present legal system if the ESO mechanism is implemented, because of the imperfectness of market economy and the lagging of legislation caused by the long practice of planned economic system and the "ruled-by- people" management system. Meanwhile, the author examines what kinds of conflicts really exist and in what way these conflicts should be dealt with. Suggestions on relevant legislation are also put forward here.