China's Stock Option System Research

Share option schemes are now represent the most frequently used incentive to encourage senior managers in modern companies, especially in quoted firms. These schemes could resolve the problem of agency cost because of the separation of ownership and management. Generally speaking, the theory of share option schemes includes the concept, legal character and effect analysis. Share options allow managers to buy a specified number of their company's shares at a fixed price over a specified period. From the legal perspectives, share option schemes indicate option, future, free and value. Actually, perfect systems do not exist, which means share option schemes have not only positive aspects but also negative aspects. How to use relevant laws to lead these schemes is what authority has to do.The theory of human resource, agency theory and the theory of corporate governance are the foundation of share options. Managers' ability is one of the most important factors in a company, which is the same importance as substantial capital, labor and technology. Firstly, with the coming of new economy, human resource will be more significant than substantial capital in an organization. Share option schemes could relate the evaluation of managers with performance of a company they generate. Nowadays, it is popular that senior managers are different from ownership, and there are some big differences between them. The agency problem is said to occur when managers make decisions that are not consistent with the objective of shareholder wealth maximization. Based on this situation, share option schemes have come into being. Secondly, as for corporate governance theory which is one of the foundations of share option schemes, it refers to the arrangements of the management and distribution of profit among principals, creditors, employees and managers. Whether a company performs a share option scheme or not is one indicator of measurements of the effectivity of corporate governance in the firm.