Abstract: All traditional principal agent models are ground on absolute selfish agent.In this paper introduces inequity aversion and risk aversion factor on the basis of principal-agent theory to study how motivators,risk aversion as well as inequity aversion effects manager stock option incentive.The result reveals,risk aversion tendency leads management to reduce the proportion of shares acquired,motivators lead them to add share proportion of shareholding and equity preference makes their shareholding ratio about 1/2.When the managers are not contracted and they are risk aversion and inequity aversion managers,in order to encourage managers'investment,shareholders must give the proportion of equity to them to balance the profits between managers and shareholders.It can reduce the cost of inequity averse,thereby reducing the principal-agent cost.

Key words: inequity aversion, risk aversion, manager stock option incentive, contract theory