Managers Stock Options System Is Negative Incentive Effects

ESO (Executive Stock Option) system is a long-term incentive system.Successful practices in western countries for many years show that it helpsinspiring managers, minting agency cost, amending governance structure andso on. But from the exposure of USA corporation scandal to the National cityBank of New York and Microsoft's adoption and rejection of ESO,more andmore people become suspicious of the system of ESO without restriction.This passage explores the negative function of ESO, for example, reducinggovernance efficiency, inducing executive fraudulent practices andintensifying internal contradiction. The weakness of ESO, resulted fromcorporation governance and entrepreneur's moral hazard, lead to insiderscontrol, even internal and external control systems ineffective. This paperstudies Kingdee and Microsoft cases, tries to find the core of ESO. In the end,we get the conclusion: the existence of external control system would enhancethe monitoring function of the internal control system, and as a result restrainthe moral hazard behaviors of the entrepreneur.