Stock Option Incentive System, The Basic Legal Issues

Executive Stock Option (ESO), existing in the cases of the owner separated from the manager in modern enterprises, is a salary rule which impel managers and employees to work hard for the long period development of company. Under the complete company law, securities law, tax law, accounting rules, and these relevant regulations, ESO is applied extensively in the west countries. It also, received tremendous success and universal acceptance. In the biggest companies in USA, ESO accounts for 50% of the remuneration of CEO, and for 30% of the payment of junior managers. At the same time, ESO accounts for nearly half of the rewards of the Board of Directors. Because of the implementation of this incentive rule, the remuneration of CEO can be tied up with the achievements of the company. CEO will work hard in order to raise the business volume of company. In recent years, the derivative forms and the similar forms of ESO have been proposed in some companies in China. But because of the confinement of the relevant laws and the traditional managerial system, the vacancy of matching regulations, ESO rule hasn't made full use of its potential function. Amending current laws and constructing matching regulations become an urgent task. The article starts with a deep discussion on ESO rules in these cases. First, on the basis of explanation of the concept , character, type and operation theory of ESO, Second, I research emphatically the basic legal theory of ESO and the legal rules which should be conformed to during the implementation. I also analyze the prerequisite of the effective execution of ESO. I point out the import necessity of ESO by analyzing the successful experiences in foreign countries and actual conditions in our country. I investigate some legal problems encountered in our companies by the method of demonstrable analysis, and propose some legal designation to seek the solution to effective implementation of ESO in our country. I hope that my research can provide some favorable suggestions to the future amendment of relevant laws and new legislation. I also wish that the article would contribute to establish ESO rule that is suitable to the national conditions and ensure the ESO rules making full use.