Research On Stock Option Of China's Companies

Stock option scheme is one of the long-term incentive schemes in modernenterprises. It is an application of financial instruments in the remuneration system,and gets a great development and now popular used in abroad. Some enterprises inChina tried to carry on the stock option scheme from the end of the 20th century,but met a lot of problems when practice. This paper will do a basic study on thepractices of stock option scheme in Chinese listed companies.1. Theory foundation of the stock optionThe theory foundation of the thesis is the "Delegation and Deputize Theory",which is also the basic theory that concerning the governance of enterprises.Delegation and deputize theory emerges from the separation of the ownership andthe control power with two presuppositions. One is the inconsistent goals betweenthe owner and the management team, and the other is information dissymmetry.2. Practice on stock option scheme in Chinese listed companiesThe stock option scheme has a short history in China, and was introduced anddeveloped in the reform of Chinese state owned enterprises. As one of an internalallocation system, the start point of stock option scheme is to establishing aeffective long-term incentive-restriction mechanism by combining the benefits ofemployees and the company, so as to encouraging the employees to makecontinuously and stable contribution to the company.The weakly effective security market, infection of the government to themarket, and the defective law circumstance make up of the main obstacles ofcarrying on stock option scheme in Chinese listed companies. Because of thereasons mention above, some listed companies try another way called "dummystock option scheme", which is similar to the stock option in many aspects, andcould help to solve some problems that stock option faced in some extend. But itstill has something leave unsolved.3. Reasons for the low efficiency of stock option in ChinaFirstly,"Employee stock" is the main source of the stocks that senior managementin listed companies hold.Secondly, the right and obligation between the shareholder and the managementteam are out of balance.Thirdly, mechanisms for restrict the management team is incomplete.Fourthly, the security out of order makes the stock option scheme ineffective.Incomplete competition, management appointed by the government, listedcompanies approvals system, stock price manipulation and the stock pricefluctuate are the main factors influencing the efficiency of the stock option.Fifthly, the immature capital market becomes the obstacle of the stock option.4. Suggestion to the practice of stock option scheme in China(1)Make experiments(2)Construct a appropriate internal environment(3)Concrete suggestions to the stock option schemea. About the stock option styleb. About who should get the stock optionPromoting the stock option in a wide range in present circumstances wouldinduce low efficiency. Researches find that senior management and importanttechnologist are the appropriate people to achieve stock option. Listed companiescould enlarge the scope that stock option applied after they get more experiences.For example, they could give the stock option to the department with outstandingperformance, and the right of internal allocation is authorized to the departmentitself.c. About the price to realize the stock optionThe price to realize the stock option is the most important factor of the stockoption design and will influence the incentive intensity. Factors to be consideredinclude whether the scheme is effective and feasible, and the influence to originalshareholders.d. About the scale of the stock option schemeThe scale of the stock option scheme depends on several factors. Generallyspeaking, rank, salary, performance and capability of the employee are the mostimportant factors to be considered. What the schemes focus on is differentaccording to the industry and life circle stage the company belongs to. Listedcompanies should choose according to their condition.e. About the period of validityThe period of validity depends on the concrete circumstance of the company.The main goal the stock option scheme needs to achieve is to balance the benefitsbetween the shareholders and the management. Companies in different stage of thelife cycle had different consideration in the period of validity.f. About the way to realize the stock option schemeAccording to The Enterprises law, the senior management team could not sell thestock they hold when they are still employed, so the only way to realize his stockoption is by cash. Though the non-cash way to realize the stock option is easierand has no limitation in present law, by cash will be a more effective way and neednot to worry about the problem of market manipulation.(4)Necessarily modify to the stock option scheme...