Executive Stock Option Study

Economical institution provides basic rules for economical actions of human being and reduces the cost of transaction. Institution also indemnifies the rights and benefits of core resource and its owners and such processes define the essence of institutional transition. In intellectual economic era, intellectual resource becomes core resource of the society replacing capital. As an innovation of executive compensation portfolio, executive stock option (ESO) reflects the trend of institutional transition that residual should be allocated more to intellectual resource. The significant phenomenon shows the most elementary rule of current transitions of institution. The detachment of operating rights and ownership incurs so-called agency problem. ESO aligns principal and agent to the same goal and accordingly relieves the problem. While ESO encourages managers pay more attention on long-term development of their companies and be more liable to adopt new technology or innovation. The dramatic growing body of US economic or so-called 揘ew Economic? mainly depends upon the development of high tech. industry, esp. IT industry. The successful bonding of risk capital and intellectual resource could be said is the most important reason while ESO is exactly the very bonding. In fact, the effects provided by ESO on keeping Intellectual Resource (key employee) involved and how to use the special kind of Human Resource, benefits both of principal and agent. In this paper, we analyze the mechanism of ESO and its applications in USA. The phenomenon that the effects of ESO in traditional industry may be weaker than 揘ew Economic companies?is also explained in the brochure. Furthermore, we demonstrate that systemic risk of capital market may deviates the effects of ESO from its designed goal and hold forth our opinions on it. At last, we present our opinions on the practical application of ESO in China.