Abstract: Traditional option incentive contracts measure manager performance with stock price,but stock price in capital market really is affected by system risk,which leads to reversed incentive.That is to say,it incorrectly punishes capable manager or bounteously award incapable manager.In allusion to the limitation of traditional stock option,a few academicians removes the effects of market and industry noise on option incentive contract through the link of the exercise price of option incentive contract and some index.But the absolute index option can’t change the structural shortcoming of index option incentive contract,that is to say,they can’t incomplete remove the effects of market and industry noise on option incentive contract.Accordingly,this paper anew designs the exercise of stock option in line with relative performance and portfolio idea,that is to say,the paper complete removes the effects of market and industry noise on option incentive contract through changing beneficial structure of expect and designing based performance portfolio with exercise price.

Key words: relative performance, portfolio, option, incentive contract