Research On The Valuation Of ZTE's ESOP Based On Option Pricing Model

In order to retain professional talents,motivate employees and strengthen their sense of responsibility and ownership,more and more enterprises in our country have implemented employee stock ownership system(ESOP).Since June 6,2018,the China Securities Regulatory Commission(CSRC)has published and implemented the "Guidelines on Implementation of ESOP and Option Incentive in Pilot Innovative Enterprises",which broadens the scope of application of ESOP in Chinese enterprises.This has enabled ESOP to proceed smoothly in Chinese enterprises and achieved positive results.However,there are still obvious differences between the ESOP implemented by domestic enterprises and the stock ownership system implemented by Shanxi draft banks in the late Qing Dynasty and the ESOP implemented by foreign countries.Therefore,for the enterprises implementing ESOP,how to evaluate the options to be distributed in a reasonable and compliant manner is the first important thing in implementing ESOP.This is of great significance to improve the relevant research of ESOP,the application of option pricing model in ESOP and the reasonable valuation of the underlying assets.The ESOP is a specific enterprise incentive system to attract,encourage and retain core talents.Based on the two-factor economic theory,principal-agent theory and human capital theory,this paper applies the option pricing model to evaluate the option pricing of ESOP.In this paper,ZTE Corporation Limited is selected as a case study,and the option pricing model is used to analyze the valuation of the options in the ESOP.Firstly,it gives an overview of ZTE's basic situation,equity structure and implementation of ESOP;Secondly,it analyzes the reason why the company makes the ESOP and the applicability of the B-S model to the option valuation.Then,the five important parameters in the B-S model are assigned and the basis is explained.Finally,the option valuation calculation is carried out.Finally,a comparative analysis is made between the calculation results and the option value calculated using the binary tree model,and further sensitivity analysis is carried out.Analyze the reasons for the deviation from the stock price on the unlocking date,including the lack of uniform standard for the selection of model parameters;Insufficient disclosure of relevant information about the ESOP;The relevant laws and regulations are not perfect;The stock fluctuates greatly;As well as some defects in the existing valuation model.The suggestions put forward in this regard have standard model parameter selection criteria;Strengthening the supervision of information disclosure;Establishing relevant laws and regulations;Selecting the appropriate incentive time;And improve that accuracy of the model.This provides a reference for the company to improve the ESOP,effectively motivate the staff's sense of responsibility,enhance the staff's enthusiasm,retain talents and improve the enterprise's performance.