Stock options, which prevailed across Western countries at the end of the twentieth century, offer an appealing prize to executives and have been highly recommended by most leading multinational companies in the United States and Europe because they combine incentives with restrictions. The sensibility of motivating executives with equity initially was well supported by theory. In addition, management motivation has become a topic of interest in China, and Chinese corporate reforms often include equity-based incentives and stock option systems, in an attempt to facilitate the adjustment of the present the security market.
This study addresses these conditions. First, it undertakes a thorough review of relevant literature on this very subject and overseas and domestic empirical studies. Second, a multiple linear regression analysis model uses statistical data about Chinese listed companies to identify determinant or influential factors regarding which part of executives’ revenues should be linked to equity. Third, an empirical analysis of present practices offers with some suggestions based on the observation of differences between theory and practices, which may be helpful for the construction of future incentive systems.