Incentive Model Design Of Phantom Stock Option Based On Relative Economic Value Added

The separation of ownership and control rights result in the incentive of manager and become the core question in resolving the agent costs. However, the existing incentive mechanism of stock option used by the listed companies has a lot of disadvantages: weak-efficient stock market lead to ineffectiveness; Lack of restricted mechanism to avoid moral hazard; Restriction by the laws and regulations limit the application of stock option; etc. This problems reflect the urgency of designing a manager incentive mechanism to improve company performance, correspond with the interests of the shareholders.This paper makes survey on the researches of the existing incentive model of stock option and find that the main problem is that the current model has ignored the effectiveness of the stock market and contradicted with the principle of relative performance evaluation in managerial compensation theories, that is, compensation contracts should insure managers against uncertainty generated by common factors, while retaining controllable and idiosyncratic effects to provide the appropriate incentives. This paper starts form principal-agent and incentive theory. In the designing, we use indicator EVA to resolve the ineffectiveness of the stock market and indicator relative EVA to deal with the ideological problem. Finally, we have designed a incentive mechanism can shake off the abnormal fluctuation of the stock market and remove the uncontrollable effects generated by the common factors. This mechanism can stimulate the manager scientifically.The paper has absorbed the advantages of the traditional model of stock options, developed a specific mode of application framework. In order to test the scientificalness of this incentive mechanism, we have experimented on Jiuguan Iron & Steel (Group) Co., Ltd. At last, in view of the design flaws in this incentive model, we have pointed out its application limitations.