Discussion On Incentive Stock Option System

Employee Stock Option Plan (ESOPs) has been widely used as an incentive tool by the employer, because it has played an important role for the companies to motivate their employees. First, it can promote the development of the companies, for example, to fulfill the long-term goals, to strengthen the managers' productivity, to avoid their myopic, to alleviate the burden of cash flow, to retrench working capital and attract and retain the promising employee. Secondly, most important one, it is a zero-cost financing source.In case of Efficient Markets Hypothesis, ESOPs is suitable for the emerging industries. But the following items should be taken into account, such as sources of stocks, amount of Options and exercise price. The measurement and recognition of Options has been the focus of considerable debate, as well the disclosure of relevant information. China Mobile (HK) has been paying a higher eye on their employee. They had adopted three ESOPs to motive their employees, especially for the senior managers. They used the same sources of stock, the same aim and finance function. But there are some different ways on the vesting object, upper limits of the amount of Options, the measurement of the exercise price and the effective date. The exercised ESOPs had provided a large amount of HK$864 million cash inflow for China Mobile (HK) at a zero-cost. It is a great evidence for the zero-cost financing function of ESOPs. There is a stable increasing trend of the EPS and EBITDA of China Mobile (HK) from 1997 to 2004. In a word, it is also deemed as an effective way for China Mobile (HK) to motivate and keep company motivating their employees.