Research On Stock Option Plan And Its Application In China

Stock option plan (SOP) belongs to compensation system. According to this plan, anenterprise should pay its senior managers, important technical staff, professional staff or all itsemployees as one part of their compensation package in order to solve the agency problem andmake the employees try their best to increase the value of the company and contribute to thelong-term development of company. SOP was born in USA, and developed very fast because ofits remarkable incentive effect. The companies in Europe, Japan or other regions in the worldalso began to apply SOP. It has been a long time that the compensation structure of the manageris single and lack of long-term incentive in China. This situation may bring to short-termbehaviors which will harm the benefit of shareholders and decrease the value of the company.Consequently, implementing SOP has become an urgent requirement in the enterprises in China.Since 1990s, Chinese enterprises have begun to apply SOP and other share-based compensations,which had not been qualified or standardized at that time. Recently, the policies of China havebecome much more encourage the use of various kinds of share-based compensation. TheCompany Act, Security Act and other related laws and rules have begun to prepare necessaryconditions for the implementation of share-based compensation plans. These changes will bringa chance to the future development of share-based compensation plans in China and make SOP ahot topic again. The basic theory of SOP is briefly introduced in the first chapter of this paper,including the relationships and differences between several similar concepts or titles which couldmake people confuse. In following chapters, the situation and the characteristics of theimplementation of SOP in USA and China are summarized, including the unique implementingbarriers in China. The latest update of related laws and rules is also followed and reported.Finally, the future picture of the application of SOP in Chinese companies is given, namely,combining with Chinese small and medium-sized board. This compensation system should beapplied in the most suitable enterprise and presents its remarkable effect.