On The Practice Of The System Of Executive Stock Options In Respect Of Our Corporate Incentives

After 1990s, as a new financial innovative tool and incentive mechanism, Executive Stock Option (abbr. ESO) has been widely used and successfully practiced by most listed companies in U.S.A. Because of its tremendous incentive effect, ESO system has been gradually adopted by the companies of other countries and a worldwide trend of carrying out ESO plan has come into being. Attracted by this trend, many Chinese companies have also introduced ESO as an important distribution mode and incentive mechanism.However, at the beginning of 21st century, ESO has been under suspicion and censure because of the emergence of Enron event and WorldCom scandal of false account book. Some scholars think that ESO is the institutional reason for tech stock bubble and company scandals in USA. Some scholars claim that ESO plan should be cancelled. Some other scholars think that we should try to overcome and prevent the ESO's drawbacks and improve the system from the point of legislation. It's very important to correctly understand the ESO plan for deepening enterprise reform and improving the incentive mechanism and corporate governance structure. Starting with the status quo of Chinese enterprises' governance structure and incentive mechanism, this paper studies the application of ESO system and its practice in China.This paper is divided into four chapters, in which the third chapter is the key one. Through the discussion both in theory and in practice, the paper studies the application of ESO incentive mechanism in China.Chapter One mainly introduces the status quo of Chinese companies' governance structure and incentive mechanism. Through the analysis of corporate governance structure, the paper concludes that Chinese enterprises especially state-owned enterprises are mainly executive-controlled. So they urgently need a good incentive mechanism to solve the potential agent problem. Then, through the analysis of thestatus quo of salary system, it points out the deficiency in existing incentive mechanism, and proposes to introduce a new incentive mechanism 梩he ESO system.Chapter Two mainly introduces the incentive thinking and meaning of the ESO system. At first, it reviews the formation and development course of the ESO system. Then it introduces the concept, the characteristics and incentive logic of ESO. Finally, it explains the important meaning of implementing the ESO system in our country atpresent.Chapter Three probes into the application problems of ESO system in our country's enterprises.Section One discusses how to design the ESO. Whether the ESO system could be successfully implemented in enterprises mostly depends on whether it is well designed. The paper analyzes the types, beneficiary, exercise price, exercise period, exercise methods and the best ratio of ESO respectively, and gives relevant suggestions.Section Two analyzes how to deal with ESO in accounting. It includes how to deal with the cost of ESO in accounting, and the different influence that four kinds of accounting methods bring to enterprises. Because at present our country has no relevant accounting rules to standardize the behavior of enterprises, this paper proposes some suggestions. It recommends using Intrinsic Value Method now, and using Fair Value Method after the opportunity is ripe.Section Three analyzes the taxation issue about the application of ESO system in our country. Through the study of relevant regulations and methods of western countries such as U.S.A, it puts forward the suggestion of how to standardize and improve the relevant tax policy of our country from two respects: the individual income tax and corporate income tax.Section Four introduces various kinds of ESO plans in our country through the specific cases.Chapter Four thinks calmly on the upsurge of the application of ESO by the enterprises in our country. At first, it analyzes the inherent defects of ESO system. Then it analyzes the risk that the enterprises will face when implementing the ESO system through the point of the exis...