Modifying Corporate Performance Assessment To Improve Incentive With The Optimal Option Pricing Approach In China

Abstract

In order to explore the effective incentive design relying on qualified performance assessment for human resource development in corporations, the study conducted innovative exploration by employing Option Pricing Model to derive optimal incentive considering the uncertainties. Panel Least Regression is executed for Pooled, fixed effect, and random effect, through processing the 16 largest listing firm in Shanghai Stock Exchange Index 50, from the year 2008 to 2016. It results that performance assessment of operational efficiency is the key to determine the level of compensation and it can effectively motivate employed executive to perform optimally, incorporating the uncertainty faced by both firm and executives. It is suggested to fetch operating efficiency as key benchmark for incentive design. It is strongly against the usage of overall performance measurement Return on Equity as the key benchmark as currently what the market is doing.