Stock Option Incentive System Of Listed Companies In China: Present Situation And Performance Analysis

The incentive and incentive system is one of the persistent schemes about institutional arrangement of a firm. Incentive system became to an important factor to the determinants of a firm's healthy development. The principal-agency theory explained that the best incentive system is actually the maximization of correspondence between "residual claim" and "control claim" or between the management and the stockholders. The executive stock option (ESO) system is one of the institutional arrangements. In the same time, the human capital property right theory recognizes the existence of human capital and its value, through the grants of stocks and stock options to the managers and employees.The executive stock option is considered to be an effective incentive arrangement and is widely applied. In the past more than ten years, stock incentive, especially stock option incentive developed in the whole world, and the proportion in the executives' payrolls kept increasing.In China, because of the improvement of market environment, law environment and corporate governance after the reform of non-tradable shares, the executive stock option of the listed companies got a fast development.Most of the list companies in China chose the executive stock option as the stock incentive arrangement. The executive stock option has great incentive effect and low cost. The proportion of stock option earnings in the executives' payrolls is very large. And from the view of performance, there is not much common among the listed company which implemented executive stock option. However, most of them are belong to the fast developing industries. These companies have more chance to grow, and the stockholders and the board are hard to define the properness of the activities of the executives, and are inclined to apply executive stock option.Through the study of effect in the executive stock option in the listed companies in China, I found the companies which adopted executive stock option are better than which not adopted in not also financial profit or stock return. Although it is effective in the relative performance evaluation of industry, it's lack of relative performance evaluation in market. The effect of executive stock option is mostly influenced by market return.In brief, the executive stock option got great development in China, and achieved remarkable effect. However, there are also a lot of problems such as the excessive interference of market return. It's necessary to improve the design of executive stock option plan and relative performance standards. For example, it may be suitable to apply indexing option in implementing executive stock option.