Corporate Feature, Executive Stock Option And Corporate Performance

The theoretical study and practice in the West has proved that the Executive Stock Option (ESO) works out better as a long term incentive compared to the traditional remuneration approach like basic salary and annual bonus. Recently, with the relative policy coming out and the development in the corporation internal governance, the environment is becoming friendly for the use of ESO in China. More and more listed companies are beginning to take this incentive tool. In this situation, the study of ESO is important and urgent.ESO has long been the focus for the West scholars, while the empirical studies are far from enough in China. The literature shows that the implementing of ESO can be influenced by many corporate features, but the results are not consistent. Moreover, the relation of ESO and corporate performance is not clear. In order to understand the relation between ESO and the corporate features in China, this paper has studied the data of all the A listed companies which using ESO. At the same time, the matching sample companies which are NOT using ESO are also selected for the target companies. These two kinds of companies are in the same industry and characterized with similar assets.The result of this study has shown that strong growth and earning potential, low shareholding concentration and high level of independence in board members significantly influence the decision of using ESO. After the implementing of ESO, the monetary compensation goes lower as the ESO share goes higher. The two incentive tools complements to each other. Besides, ESO is not a good incentive for the corporate performance in a short period, but the monetary compensation is. Compared to the matching companies, the average age of the top management team (TMT) is lower in the target companies. However, the debts to asset ratios, the setting of remuneration and performance evaluation committee and the probability of position of CEO and chairman in board are taken by the same person have not much difference between the two kinds of companies. There are not more that a half of target companies which have set remuneration and performance evaluation committee. This condition is doing harm to supervision of ESO.In order to fix the confliction between the increases in companies who are using ESO and the lack of relative theoretical study in China, with the empirical study approach, this paper aims at finding out the corporate features which are part of determinants for taking ESO and test their influence. The findings will be the earliest in domestic relative studies and can be a good guide for the future practice.