Improved Design For The Executive Stock Incentive Mechanism Based On Principal-agent Problems

As modern enterprises reform and market competition grows fiercer, principal-agent problems arise from: owner-management divisions, owner-management information asymmetry, and the complexity and uncertainty of economic environments. Because supervisory approaches and moral discipline have proved insufficient to solve these problems, the establishment of enterprise incentive for talented workers is an important way to address these issues for a developing market economy. Such incentives include executive stock options which are under heated discussion here at home and abroad.This thesis focuses on the design and optimization of the executive stock options through asymmetrical information theory with a view to overcome the problems associated with moral hazard arising from hidden actions. The study has a theoretical section and an applicable section. The first, theoretical, part points out the defects of a general incentive mechanism based on a model of principal agent. As we know, the incentive contract, as a kind of surplus claimant systems arrangement (income being, on the one hand, a" positive " or " advantage ", on the other hand, a " negative " or " responsibility " or " risk ") may realize " advantage " and the residual claimant (also known as " right") match, can provide uniformity between principal and agent benefit. However, this mechanism is unable to accomplish reasonable risk sharing between principal and agent, and that results in increased agent and incentive costs. As an alternative, this thesis will demonstrate that, by introducing a comparative performance option model, risk sharing tends to be more rational.In the second, application, section using a situation where the agent has aversion risk and the principal has neutrality risk, this thesis applies a linear and comparative performance option model. The study results suggest that, if effort level is unknown, and enterprise profits are a sufficient representation of the principal effort level, then the contract derived from a linear model becomes a limited risk sharing contract. This can be represented by the following:...