The Research On Executive Stock Option Of Chinese Listed Firms

Sound corporate governance structure is constituted of two parts binding mechanisms and incentive mechanisms. While Chinese enterprises, especially state-owned enterprises has not perfected in the incentive mechanism of origin for a long time. Although China's enterprises has been taking on some actions such as expanding the decision-contract system, and the practices of the annual salary system, and aroused the enthusiasm of the operators, but induced a short-term activities. Meanwhile, as a modern enterprise has grown up, the contradictions behind the "trust -agent" relationship will become even more complicated. And in these circumstances, how to effectively solve the problems of information asymmetry and demand for the interests of the objective existence of differences between the business owners and business operators ,and how to effectively improve the business efficiency of the workers and improve the low efficiency of enterprise operations, became the focus of theory and practice of financial sector. The traditional incentive model "salary + bonuses + benefits (CPF)," because of its established earlier time, and the role of excessive incentives will be defined in the enterprise to maintain the fairness of the staff salaries, thus unable to achieve a good incentive to reflect the performance of employees . Against this background, a new kind of incentive system bred out using the company stock as a means of incentives: ESO (Executive Stock Options, ESO).This modern enterprise system is implemented a long-term incentive and restraint mechanisms according to separation of the modern enterprise management rights and ownership. ESO is a well-established long-term incentive practiced by the developed countries; the origin of the incentive is that the traditional salary structure could not solve the principal-agent problem which needs the necessary long-term incentives. Compared with the traditional incentive mechanism, by transferring the remaining profits and remaining risk to the operators, ESO effectively connects the executives work performance and the company's performance through the tie of company's stake, thus can satisfactorily solve the problem of the differences between performance and enterprises operating results which can not be solved under the traditional performance evaluation system. ESO also effectively overcomes the short-term behavior of manager, reduces agency costs, and prompts the diversified shareholding structure. While if ESO combining with the traditional paying system, it can perfectly be dealt with the balance between fairness and efficiency, thereby effectively improves the enthusiasm of the corporate staff.ESO, as a solution of the issue of corporate governance, providing more flexible incentive compensation effective tools to company executives , was born in the United States in the 1950s and 1960s and began popular in the mid'80s, and then was fully applied and developed. China brought in this advanced executive incentives in the 1990s, but because at that time China's capital market has just established soon, the corresponding lack of a legal system for other reasons, the system did not applied on a large scale. But as China's capital market continues to develop, the traditional effective incentive mode "pay + bonus + benefits (CPF)" began to show the shortage in improving enthusiasm of staff, meanwhile a small number of domestic enterprises using ESO have tasted sweetness from this incentive system and gained some experiences, which makes other enterprises have started to consider whether using such incentives, while domestic capital market supervision department also began from the macro-levels analyze the pros and cons of adopting such a system. Given this premise , the Ministry of Finance, Securities Regulatory Commission and other departments have issued country to the relevant policies and regulations, thus enabling ESO has entered into a new stage in China - a conservative from the original , the wait-and-see attitude until now gradually feeling way across the river, and actively explore development potential of ESO system in our country.ESO as the long-term incentive system which solves the contradictions "commission - agent", rewards and risks of symmetric problem, has attracted more and more attention of investors, economists and financial experts. China brought in this advanced executives incentives in the early 1990s, but at that time China's capital market is still in its infancy stage, the corresponding lack of the legal system, such as the "Company Law" and other economic laws still exist in the amendment lagging behind, the existence of these issues has brought layers of shackles to ESO in China's development. But developing for years , ESO system in our country has good development potential and broad space for development, its flexible incentive forms, and incentive efforts can make up for the traditional inspire model "pay + bonus + benefits (CPF)" , gives companies and employees greater autonomy and enthusiasm. It is worth mentioning that the China Securities Regulatory Commission promulgated the "incentive stake in a listed company management approach" (Trial)in the end of2006, almost at the same time, the new "Company Law" basic completed update, and the current purchase shares of listed companies reform basically completed, ESO developed in our country more rapidly. This led to China's state-owned enterprises and listed companies learning from their foreign models and planning to vigorously implement of ESO in a period of time.And in a few years time there are as many as hundreds of enterprises have already implemented ESO getting more and more attention of enterprises. This shows that the business communities have strong internal demand of reforming property rights system and solving the conflict of commission-agent.This paper is divided into five sections:The first part is the introduction. In this part presented background, purpose, significance and the status quo of research and studies at home and abroad, and its role is to raises the question.The second part outlines the system of executive stock options. First it introduces connotations, characteristics of ESO, then following by analysis of the effectiveness of incentive standards of ESO.The third part introduces the status quo of executive stock options applied by Chinese enterprises so far, sums up its characteristics.The fourth part is empirical research. Find out existing problems through quantitative study of China's system of executive stock options.The fifth part is suggestion. From the establishment of oversight mechanisms, improvement of the relevant legislation, the corporate governance structure and the capital market in China has put forward four ESO system building strategy.