Executive Incentive Pricing Analysis

Designing a suitable executive incentive plan in the corporation government structure has become a common and important method to solve the opposite between the principals and agents. In China, with the building up of modern corporation institution, more and more corporations have tried to take advantage of the executive stock incentive mechanism. But due to the complexity of such incentive methods and some limitations in the institutions of our country's corporations, these incentive plans tried out in our country have many deficiencies. At the same time, the subject of Financial Economics has just come out in our country, so there is a lot of research work need to be conducted in this field.This thesis tried to employ the theories and technologies of financial economics to study the value and incentive effects of the main financial tools in the executive incentive mechanism- Restricted Executive Stock and Executive Stock Options (ESO). Also, we tried to identify its intrinsic deficiencies and then tried to make the improvements and optimizations.In the evaluation of Restricted Executive Stock, we applied the non-diversified stock value method which is derived from CAPM model. Then, we analyzed the efficiency of and the cost of this incentive program. In the Executive Stock Options (ESO), the most usually used valuation method is the B-S formula, but it disregards many specialties of ESO. In this thesis, an extended "stopping-rate" based binomial tree model has been employed to address the problem. We also make the Matlab programming to analyze the results of the involved parameters.In the finality, the problems requiring further studies are discussed.