The Research On Stock Option Incentive To Executives Based On EVA

Constructing and perfecting the incentive mechanism is an important part of modern corporate governance structure. As an long-term incentive system, the stock option can unify ownership interest and benefit of the operator; it has been proved a perfect solution to entrepreneur promoting in china and overseas.To make the ESO produce the positive effect, we must construct the reasonable proprietor performance evaluation system. The financial scandals such as Enron and MCI worldcom in America and Yingguangxia in China further appear the importance of selecting performance evaluation indexes in constructing operator incentive mechanism. At present, big companies are using indexes such as selling income, net profit, EPS, ROA, ROE etc to assess. These conventional indexes don't consider the cost of capital but only use the format of interest expense to reflect debts financial costs and neglect the cost of stock ownership capital as well. In addition, these indexes are likely to lead to the short term profit pursuing among higher class managers and even the flood of fake indexes.EVA is a quite good choice to solve the problems mentioned above. EVA is the real economic profit which equals net profit after tax minus all assets cost including stock ownership and debts. Additionally, EVA brings forward a higher request to manager, that is to say, being responsible for the efficient use of capital and the expected income of capital so as to improve the efficiency of capital collocation, promote manager to increase the profit level and increase the efficiency of capital uses.In this paper EVA is introduced to performance evaluation system in designing stock option plan. By constructing multidimensional performance evaluation system based on the EVA, we can make the core essential factors of stock option plan: the option quantitative distribution and dynamic exertion price is closely bound up with EVA, thus evading the operator morals hazard effectivelyThis paper contains 4 parts: The first part briefly introduces the research background of this paper, the present research condition in China and overseas, also, the thought and approaches used in it. The second part introduces the theoretical basis of stock option: incentive theory, agency by agreement theory and entrepreneurship theory ; the core essential factors; incentive effects analysis. In the third part, we mainly introduce EVA's principle and calculation as well as advantages and disadvantages, thus EVA multidimensional performance evaluation system is introduced. The fourth part briefly introduce the main idea and significance of the model, the core essential factor designing: the option quantitative distribution and dynamic exertion price, further analyze stock option plan of HS Co. Ltd. In the end, we proposed the suggestion and the forecast to implementing the stock option in our country.