Research On The Applicability Of The Stock Option Practices In China

Along with modern enterprises developing stronger and stronger, the principal- agent problem behind the economic entities becomes more complex, thus, scholars begin paying attention to the problem that how to resolve the benefits dissymmetry problem between the enterprise proprietor and the enterprise executive, and enhance the operational efficiency of the workers. The traditional"wages+ bonus + welfare (provident fund)"incentive mode has been established for a long time, and it focus on keeping the salary at a smooth level, in such circumstance, a new incentive method, the executive stock option(ESO), which basing on the stock option was developed. Using this method, the executive's performance can be linked with the performance of the company through the company's stock option, and if combining ESO with the traditional incentive system, the enterprises can easily find a balance point between the fairness and efficiency, thus effectively improving the staff's especially the executive's work efficiency.As a solution to corporate governance, ESO provides more flexible incentive compensation way, it was found in the USA in the 20th century, and introduced in China in 1990s. At that time, China's capital market was just established, and very lacking of correlative laws and regulations, so the ESO didn't implemented in large scale, but along with the constant development of China's capital market, the traditional"wages + bonus + benefits (provident fund)"incentive model couldn't improving the worker's efficiency very well, and few enterprises which have already using ESO began to get some benefits from this new incentive method and got some experiences, that made many other enterprises begin to consider whether using this new incentive method or not, domestic capital market regulatory authorities also began improving this implementation system from both macro-level research and a large number of micro-economic entities analysis results, and finally getting the conclusion that China has already satisfied the conditions to implement the ESO. So, the Ministry of Finance, China Securities Regulatory Commission and other departments issued relevant regulations and laws to supervise the ESO. This means that the development of ESO in China has entered a new stage--from the original's wait-and-see attitude to gradually study and implement this incentive method.Therefore, when ESO incentive system has gone through more than 10 years in China, it is very necessary to evaluate the feasibility of this incentive method. A system is helpful only when it is fundamentally consistent with the actual situation, therefore, analyzing whether ESO is consistent with the actual development of the country's capital market, is the key point of the problem. Second, if the system is suitable, then how to make better use of this incentive method to improve worker's efficiency is another issue we should seriously consider.Through analysis, this article gets the conclusion that the ESO incentive method is suitable for China's capital market, and further more, putting forward establishing a diversified executive performance evaluation system. This article first introduces the basic theoretical ESO knowledge briefly, and then reviews the development process of ESO in developed countries and in China, after that, analyzing the history of the incentive systems for the executives of China's enterprises. At the same time, the article finds the obstacles which China will face to when applying the ESO incentive method from capital market, laws and regulations, and the corporate governance angles, and gets the conclusion that the ESO incentive method is suitable for China's capital market and it should establish a diversified executive performance evaluation system in order to improve the efficiency of the implementation of ESO.The article is creative in the topic selection and researching angle. One truth is that many domestic enterprises haven't applied the ESO incentive system for a long time, it's very difficult to get the data to do some positive researches, due to this, this article mainly using empirical research method. First, this article focus on the applicability of the ESO in China, which is less hot but indeed very important for us to find out whether the ESO incentive system is suitable for China's capital market and how can we make best use of it in order to improve the executives' working efficiency.