Study Of Executive Stock Option System

Executive Stock Options (ESO) is a kind of internal distribution system that enterprises have been using to encourage executives to work hard for the purpose of developing the enterprise with the separation of ownership and control. Since 1990s, ESO has been prevailing in America and has been playing a due encouragement role in the practices. It has been a long time that the compensation structure of the manager is single and lack of long-term incentive in China. This situation may bring to short-term behaviors which will harm the benefit of shareholders and decrease the value of the company. Consequently, implementing ESO has become an urgent requirement in the enterprises in China. Meanwhile, the application of ESO is restrained by a series of systems in China at present, and it is still irregular. Recently, the policies of China have become much more encourage the use of various kinds of share-based compensation. The Company Act, Security Act and other related laws and rules have begun to prepare necessary conditions for the implementation of share-based compensation plans. Based on facts above mentioned, it's really necessary, we think, to reexamine ESO and make a prospective study of it for the purpose of standardization.This paper firstly studies the basic theory of ESO, then we clearly research the executive incentives. It further analyses the necessary and defects of ESO in our country, proving that introducing long-term incentives, such as stock option into China is necessary and urgent. But, stock option is not so perfect by nature, and it brings changes to its premise as well as a serious of new problems when it was introduced into China. Through comparison of conditions for exercise stock options incentive program in and out China, this article puts forward many suggestions about relative conditions on law and regulations, capital market and company management. It also comes out with many improving methods aiming at causes of those defects. Finally, the article raises problems for implementing stock incentive program that should be noted under our uncompleted conditions, and actively designs the factors that stipulating the stock option, making the program adapt the conditions of our country.