On Innovation, Business Incentives

Since the beginning of the 1990s, executive stock option system has become an indispensable institutional arrangement under the modern corporate structure to solve the problem of principal-agent and moral hazard. Moreover, executive stock option system developed along with financial system and laws in such areas. It can be said that, how to fully understand executive stock option system and how to effectively integrate the system to the corporate governance structure of China's enterprises, has become a rather urgent and important task.Executive stock option system in our country is a rather new thing, not only lack of in-depth theoretical discussions, but also short of the practical exercise. How to draw a good lesson from the western countries and better use it in our country, this is the starting point which this paper discusses. Chapter II introduces executive stock option system, and analyzes its causes and effects; Chapter III explain executive stock option system from the perspective of economics and explore the theoretical basis which executive stock option system existence in; Chapter IV discusses how to design executive stock option system, including the inherent elements of the design and construction of the external environment; Chapter V applies the average price stock option and"certainty equivalent value"in executive stock option system. Chapter VI discusses executive stock option system in our country's enterprise applications, analyzes the necessity our country's enterprise to use executive stock option system and the problem exists in implementation, proposes from the second board to impel executive stock option system construction.Executive stock option system in the implementation is a complex system, which can not be done in one day. We hope this paper can provide some references to the formation of the new incentive mechanism with the establishment of a modern enterprise system in our country.