EVA-a Performance Assessment Guideline Under The Share Option Incentive Plan

Issue discussed in this essay and it's essentialityThis essay studies on how to determine the performance assessment guideline for the managers under the stock option incentive plan of listed companies. This essay concludes that the EVA is the most appropriate performance assessment guideline by comparing among the market performance basis, traditional accounting basis and new EVA basis.The essentiality to study this issue is because the share option incentive plan of listed companies is more and more popular in the China's market, but the performance assessment guideline at present is mainly based on traditional accounting basis, it's very essential to seek for scientific and reasonable performance assessment guideline.The innovation of this essay1. This essay for the first time has performed comprehensive and systematic comparison and analysis on various performance assessment guidelines under the stock option incentive plan of listed companies, it puts forward that the listed companies should change the present performance assessment guideline to EVA basis.2. This essay for the first time to study the connection of EVA and stock price by using the year 2001 listed companies data as samples, and concludes that EVA can explain the connection between the economic value-added return rate and the stock price fluctuation.Major opinion and conclusion1. Following the issuance of the"Listed company's stock option incentive management plan (ED)", it's the tendency for listed companies to build up a reasonable stock option incentive plan, but the performance assessment guideline is relative simple at present for all the companies.2. Owing to the characteristic of stock market such as lack of effective control, the overall stock price is easy to be fluctuated significantly and easy to bemanipulated, the market performance basis is not suitable to be used as the major performance assessment guideline.3. Owing to the following deficiencies related to traditional accounting basis, such as without considering the financing cost and risk factors, easy to be manipulated and distorted the result, hard to lead the managers to serve for the best interest of the shareholders, the traditional accounting basis is not scientific and reasonable even thought it is widely used at present.4,EVA is the best method to explain the process of increasing the shareholder's value within all the financial assessment guidelines. It's verified by facts that the EVA can explain the connection between the economic value-added return rate and the stock price fluctuation. It has more closer relation with the market value-added compared with traditional accounting basis and market performance basis, no matter the market is mature or not. Therefore, the EVA basis is the most appropriate performance assessment guideline for the stock option incentive plan of listed companies.