Research On The Value Of The Executive Stock Options

Executive stock option (ESO) is one of the best incentive systems. The implementation of ESO produces the convergent effect of a kind of interests and combines executive and company's interests closely together.First this paper carries on the summary of ESO, analyses the theoretical foundation and the function of maximizing the question of encouraging and implementing. Second it introduces Hall and Murphy's redefining of the cost and value of ESO, the way called Certainty-Equivalence to calculate the value of the ESO and Tian's improvement of the CE way, and their conclusion: the CE value is lower than the BS cost of the ESO. The most important part of this text is that Chapter 4 analyzes the factors of the value of ESO by the way of quantitative analysis and qualitative analysis. Through analyzing the factors of the Certainty-Equivalence value and the characters of managers'human capital we get the modificatory model of the value and do some real example analysis.By the analyse we should notice: using ESO, we should fully consider executive's own manpower capital values, distinguish the value and the cost of the ESO, and apply the CE way to calculate the value so as to spirit up the managers. When using the BS way, we should auxiliary other encouragement means. When using CE way and the statistical method, we should consider the assumed conditions fully, and adopt different options quantity to encourage different managers. Base on that, we can remedy the difference between CE value and BS cost in order to realize better motivation.