Study On Executive Stock Options

The paper includes six chapters. In chapter 1,I introduce the topic in the paper and analyze the theory basis of executive stock options. In chapter 2,I bring out the specifications and classification of stock options from the connotation of stock. Meanwhile the stock options based on incentive mechanism is defined and classified. The financial issues in options contract based on incentive mechanism are also discussed. Executive stock options, as a new distribution method, are regarded increasingly by the government and the company. Executive stock options of the stock company which has not come into the market is discussed in chapter 3. The parameters and management methods of executive stock options are analyzed in the chapter. The result can be used to instruct the stock company to execute stock options. Meanwhile three kinds of ESO exercise price model are offered: sales revenue, net income and equity model, tangible assets and intangible assets model, equity model. In chapter 4, indexed stock options model based on incentive mechanism is studied. Incentive of executive stock options depends on the effectuality of stock market. If the market is weakly effective, there will be little connection between executive payment and corporate performance. In order to conquer the weakness of market, chapter 4 examines indexed executive stock options. This chapter analyzes how to establish the exercise price using a benchmark stock and also give the pricing model. Chapter 5 is to study the accounting recognition of ESO. After deep discussion, the chapter draws the following conclusions: according to the modern theory of the firm, the economic nature of ESO is executives' sharing of claim to firm's residue. Before the executives exercise the options, they become firms' non-shareholder owners. Thus, in order to reflect the economic nature of ESO, it should be recognized as firms' profit distribution. As the result, the accounting for ESO would not affect the income statement, this would contribute to measuring the ESO by the fair value method, which reflects the value of ESO more reasonably. The measurement and disclosure of ESO are also discussed in the chapter. In the last chapter, I analyze the operation of the native and foreign executive stock options (ESO) briefly and make a concise commentary on the problems which exist in executive stock options in practice. Meanwhile The Sarbanse—Oxley Act of 2002 is introduced. The Sarbanes-Oxley Act of 2002 was passed by American Congress and was signed by American President into law on 30 July 2002, as a radical reaction to the accounting, auditing, corporate governance and securities supervision issues arising from the accounting scandals that begin with Eron. The Act contains a numbers of sweeping reforms of oversight of accounting industry, auditing independence, financial disclosures, corporate responsibility and criminal fraud accountability, etc. From that the policy suggestions on ESO are given.