China's Listed Companies In Executive Stock Option Incentive Problem Analysis

The development of enterprises depends on the talents, so how to obtain them and use their abilities, i.e. the talents incentive problem becomes one of difficulties that enterprises must solve. Taking a broad view of the development of corporations in the western countries, Executive Stock Option (ESO) has produced great effects. The paper aims to study ESO incentive problems in enterprises of China.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 1990, ESO has been prevailing in America and has been playing a due encouragement role in the practices. As for our country, along with the setting-up of modern enterprise system and rapid development of capital market, principal-agent problem becomes worse. In order-to solve this problem, some enterprises in our country have already adopted ESO. But since the accounting frauds of Enron and WorldCom at the beginning of the 21st century, ESO has encountered unprecedented suspicion and heckling. Meanwhile, the real mechanism still was not implemented for the sake of realistic condition formerly. At the end of 2005, the Chinese Securities Supervisory Association had issued "Listed Company Stockholder's rights policing method", and announced stock right divided reform completed basically in October, 2006. Under such background, it's really necessary to reexamine ESO and make a prospective study of it for the purpose of standardization.This paper firstly studies basic theory of ESO and the application of ESO system at domestic and abroad, then on the basis of that how to desigin ESO plan that match the present situation of the listed company, then probes into a great deal of obstacles which ESO localization is confront with, puts forward the Countermeasures and suggestions to clear away these obstacles. The research discovered the slow development of capital market, manager market, as well as the vacancy of laws and regulations, contribute to the obstacles of ESO's application in our enterprises in a macrocosmic aspect; whereas the imperfect corporate governance structure and the unreasonable manager achievement appraisal system form the obstacles in a microcosmic aspect. Special laws and regulations should be enacted and Corporation Laws as well as other relevant laws should be modified moderately to standardize the application of ESO; In order to drive the ESO system to implement smoothly in our country, we must consummate our country's capital market and the manager market; Meanwhile, because executive achievement appraisal system concerns the success or failure of the whole plan of ESO , the paper propose to use balance scorecard and EVA as a comprehensive achievement system to appraise executive's performance fairly and rationally.