China's Implementation Of Executive Stock Options

Modern enterprise system, known as company system, achieves the separation of management from ownership. However, it brings the agent problem, that is, how can the shareholders ensure that the managers work hard for the long-term development of the company with all their heart. After years of practice, a new incentive system-ESO(Executive Stock Option) appeared. ESO achieves a good cycle, i.e., the ESO gives incentive-managers work hard and maximize the enterprise value-rise of the stock price-managers exercise the option, sell the stocks and take the benefits-managers work even harder. The principle of ESO is to combine managers' interest to enterprises' interest. Managers can share the benefit of the increase of the enterprises' value so that they can exert themselves in the enterprises' development.In the traditional reward system in our country, the devote of managers is often neglected and can not get corresponding payment. The lack of motivator makes them shortsighted and not want to improve the profitability of the company. "Fifty nine-year-old phenomena" sometimes appears. How to solve those problems through effective incentive system? ESO, as a long term incentive system, achieves a good effective in the practice in developed countries and should be the main train of thought. In fact, since the beginning of 90's in last century, some enterprises in our country have begun their research on the implement of ESO. However, they met obstacles during their practices due to the limitation of Chinese ideology, the lag of law construction, the unmatured markets and the incomplete understanding of ESO. Therefore ESO cannot take effective in these enterprises.Make a thorough analysis on the successful experience and the two assumptions of ESO's good cycle, we know that it is only one part of the whole system of enterprise reform. Whether or not it can take effective and how much it can take, needs the improvement of the ESO planning in the enterprises, especially the co-ordination from external circumstances. In our country, the companies should consider all those factors related thoroughly to design a good plan on ESO according to their actual situation, the government and the society should issue favourable policies, set up supporting law system, promote the improvement of security market and human resources market, and create a good environment for the implement of ESO in our country. From now on, we should choose the growth enterprises to be the breakthrough, practise the ESO in these companies....