The Research On The Legal Issues In The Incentive Mechanism Of Stock Options Of Listed Companies

Modern companies are characterized by the separation of the ownership and management, thus producing the principal-agent contradiction between stockholders and executives. The incentive mechanism of stock options was born to reduce agency cost and to align the interests between executives and stockholders. Having developed for over 50 years in the world, the incentive mechanism of stock options is now relatively mature, especially in the developed countries headed by the United States. Meanwhile, it is also regarded as the most important and effective way to solve the principal-agent contradiction. But the current domestic application scope of such a good mechanism is still limited. The legal obstacles in the practice of this mechanism become to be eliminated due to the revision of Company Law and Securities Act after 2006. Other relevant regulations have the stipulation of the incentive mechanism of stock options, but the complete system has not been established to support and encourage the healthy development of the incentive mechanism of stock options. Through introducing the development of the incentive mechanism of stock options in theory and practice, the existing problems are analyzed and relevant proposals are put forward in this thesis.This thesis is divided into five chapters:Chapter one is introduction, which mainly introduces the background and meaning of selecting the topic and explains the necessity of conducting the research on the incentive mechanism of stock options. The researching methods used in this thesis, this thesis'limitations and weaknesses etc. are briefly described in this chapter.Chapter two introduces the basic contents of the incentive mechanism of stock options, including concept, legal nature, main form and effect, etc. Three theoretical bases of generating the incentive mechanism of stock options are emphatically introduced.Chapter three introduces the development history of the incentive mechanism of stock options in America, Britain and Japan, focusing on the development of stock options in America: First emergence in the 1950s, keeping a steady development in the 1960s and 1970s, the rapid expansion after the 1980s, and the adjustment after Enron's collapse. All behind these events are related to the equity incentives theory then and to the regulation and control of relevant regulations. Through continuous improvement and adjustment of the legal system of the company, securities, accounting and tax revenue, by applying different regulatory methods at different stages, the development direction for the incentive mechanism of stock options is powerfully controlled.Chapter four introduces the development history of the incentive mechanism of stock options in China. Since Vanke began to test the water in 1993, enterprises in China have conducted hard exploration and practice and completed some achievements. Since 2006, the incentive mechanism of stock options has stepped into its real developing period, when it has legal support for equity incentives really. The development history of equity incentives in China is short and the history with legal supports is shorter, therefore, the present development situation of our country is that all relevant department laws specify the incentive mechanism of stock options, however, due to China's more cautious attitude of this mechanism, the laws of all relevant departments are mainly based on supervisory management and strong support for this system is not showed. The specific problems existing in the legal system of corporation, securities, counting, and tax revenue etc. are pointed out and analyzed separately in this chapter.Chapter five puts forward some specific improving or amended suggestions on the existing problems raised in the legal system of corporation, securities, accounting, and tax revenue in Chapter Four. In aspect of the legal system of the company, corporate governance structure should be innovated, the efficient independent director system and independent supervisory system should be established, and the more proper performance evaluation system should be established. In aspect of the legal system of the securities, the establishment of information disclosure system and civil procedure system for securities should be enhanced. In aspect of the legal system of accounting, the articles of the regulations concerning stock payment should be defined in detail, in order to make the financial data of listed companies reliable and comparable. In aspect of the legal system of tax revenue, tax treatment of various methods of equity incentives should be differentiated, tax preference being subject to hold option or stock for a long time should be increased, and the problems of pre-income-tax deduction of equity incentives expenses should be treated cautiously.