Stock Option Incentive Mechanism

As a long-term incentive and remuneration system provided by the enterprise owners to the managers, Stock Options can combine to the extreme extent the individual interests of managers with the whole interests and long-term interests of enterprise development and was put into effect successfully in the developed countries. It is demonstrated with the statistics that among the top 500 enterprises all over the world chosen by the magazine ((FORTUNE)) in 1996, 89% of these enterprises have carried out the Incentive Stock system for the executives. In the meantime, the proportion of the amount of stock options in the enterprise's total stock is being increased by year, attaining 10% in general and 16 % for some computer companies.Our country's reality is different from that of the foreign countries. Although some common points of view are reached regarding political direction and pilot implementation in the Chinese enterprises, Stock Options is still at the beginning and has many problems in the practice, and therefore can't be generalized at a once in China. First, this article discussed the fundamental theory of Stock Options, analyzed the theoretical basis of implementation of Incentive Stock Options and its essential characteristics. Then, in the light of actual reality in China and the practical cases of stock trading companies and collective-property & Hi-tech enterprises which carried out the system of Stock Options in-pilot, proposals are put forward for the design, execution and assessment of Executive Stock Options Plan and Phantom Stock Options Plan. Finally, on the basis of the analysis of positive and negative effects of Incentive Stock Options system, it is concluded that attention should be paid to the coordination between system guarantee and normalized operation, between incentive and restriction, and to the macroscopic way on how to perfect as soon as possible the capital and human resource market, with a view to offering a premising condition for practicing as soon as early the Incentive Stock Options system.