THE EFFECTIVENESS OF STOCK OPTION SCHEME IN THE LOCAL PROPERTY COMPANY CONTEXT

Abstract

This Study aims to evaluate the effectiveness of the Stock Option Scheme (SOS) in property companies in relation to staff motivation, in the Singapore context. The study probed into the fundamental reasons why local public listed property companies considered and adopted SOS, and the effects of SOS on Company Performance with comparisons made to other public listed property companies without SOS. In recent years, SOS has been gaining popularity as a compensation tool among the local companies. Reasons why SOS has been adopted include it improving the companies' ability to attract, retain and motivate employees and tying the employees' financial interests to the long-term success of the companies. There are 23 public listed property companies in Singapore. 8 of the public listed property companies do not adopt SOS while 12 of the public listed property companies have adopted SOS. These companies are not restricted to a particular size. Data of 3 public listed property companies is not available. In spite of its gaining acceptability in Singapore, the SOS has drawbacks, which includes the moral hazard problem (a situation where the executive biases his or her actions towards self-interest) and the volatility of the equity market, which affect the level of monetary compensation. This study examines the features of SOS that makes SOS successful in reducing staff turnover, being motivational to employees and improving organisational commitment. The study also found that when key financial ratios are studied, the performance of property companies with SOS are found to be better than the performance of the property companies without SOS.