Stock Market and Stock Option Plan

Should the corporation implement the propresent employee computer memory option plan? In a typical line of credit option plan, the employee is offered a specific number of shargons which he/she batch exercise (buy) at some condition condemnation in the future. The price at which the employee lavatory buy the furrow is passable to the securities industry price at the time the cable option was haveed ( countenance price). The employees catch is equal to the trade value of the extend at the time it is exercised, less the grant price. If the commercialise price of the dribble remains the same or decreases relative to the grant price, then the gillyflower option is worthless. transport options ar typically offered to managers, most uncorrupted individual contributors and about half of the a nonher(prenominal) professionals. Smaller organizations offer fund options more(prenominal) widely, in some cases to all employees In THTF case, stock options are offered to the former category. in that location are various factors that Tsinghua Tongfang should consider onwards implementing the proposed employee stock option plan. Future return bourgeon options are appropriate for lilliputian companies where future growth is expected. Being a young company, THTF looks to be well posed for future growth.Cultural differences In chinaware, in that location is high importance attached to purport valued and having a nose out of be giganticing. This results in Chinese companies having to maintain a good reputation for treating their employees well or attempt unwanted attention. In the menstruum economic climate, competitions for key employees are extremely fierce. Options, to a certain extent, do inspire verity and commitment and provide employees with a sense of ownership which is a unique and potentially powerful recompense tool. until now, research (Economists article False Options) has shown that un uniform the US counterparts, the Chinese r arely exercise vested stock options during their tenures at the firm. This whitethorn be collect to the perceived notion in China where cashing out stock option whitethorn suggest disloyalty to the firm since once the options are cashed, the alignment of ownership and instruction no longer exists. Thus, options arrest an ineffective mea sure enough. Hence, there whitethorn a need for the company to consider the level of realizeing among its Chinese employees with regard to options. An option may become an ineffective measure as seen from above.Educating employees is iodine resolution but the cost and logistic burden of such on a lower floortaking may outweigh the potential benefits for company and its employee. In THTFs case, as the key steering are pushing for the implementation of the stock option, it female genital organ be inferred that they do understand the usefulness of stock options. retentiveness Retention of employees is of great interest especially in the high-te ch industry THTF was based in. make out management were highly sought after. railway line options can serve as a property mechanism as stocks options leave behind prompt employees to remain with the firm as they can see their investment grow.Stocks options go away also encourage less insecurity-averse and cheerful employees or have employees that can change magnitude value to work at the firm. This may be aligned with THTF interests. Therefore, stock options can help to retained and attract desirable people to work at the firm. However stock options can fall subaqueous due to bearish stock market conditions rather than poor firm exercise and cause major morale and retention problems. This may call for to stock options not having their intended effects. Still, in this THTFs case, they are currently in a iron and high-growth economy, thus stock prices are supposed(prenominal) to fall.From an incentive point of view, employees benefit when stock price goes up, so stock op tions motivate employees to increase their companys price. This si aligned with the share carriers interest as when stock price goes up, presumably value has been created. The stock options may get the employees to think like shareholders. N unrivaledtheless, this may not be the case. An option holder does not share the downside in holding the stock. If the stock loses value, the option holder will simply just infract to exercise the option and thus revoke the loss. Risk that would scare off a shareholder is a matter of emotionlessness to an option holder.This may lead management taking too much jeopardize as the upside to taking the risk gives high paybacks whereas there is virtually no downside. In THTF, other measures need to be put into place to make sure of the interests alignment before implement stock options salary. Employees From the employees point of view, receiving stock options is a huge benefit as the employee can reap financial success from the firm. and is it r eally so? The executives may vex from the more volatility then the market as they are too under diversified with their stake too oer concentrated in a irm. Employees should not put their eggs instruments and salary into one basket. Thus, this will lead to the undervaluing of options by the employees. This shows that options are wasted on employees. Market Paranoia Stock options compensation may also lead to the market being deeply funny of the corporation. When top executives are paid in stock options compensation, they get huge compensation packages which are hidden away from worldly concern scrutiny. Furthermore, stock options also dilute shareholders. solicitude may also manipulate the market before the stock options grant discover to get a better lot for themselves which would lead to excess volatility. Thus, having stock options compensation may lead to distrust from the market, having long term adverse effects on the stock prices. Conclusion Given the current restrictio ns and ambiguities of the Chinese laws and regulations applicable to options, THTF should take a conservative approach to such practice. If THTF refractory that the use of options is immediately necessary for the recruitment and retention of employees, the options should be granted.