Some members National Assembly have submitted a bill that would revise the law on stock options. They want to get rid of the provisory clause that allows a simple decision by a board of directors in order to give out 10 percent of a company's total issued shares as stock options, and to require that persons have been employed three or more years instead of two or more. The government's view is that it would be inconsistent with international standards, but given the problems that have arisen now would be a good opportunity to correct what needs to be corrected about how stock options work.
"Stock options" are a way of rewarding employees' performance, through the profits that are created when stock prices rise. However, often way too much has been given away, too much for just rewarding performance. The system has been abused by jaebeol tycoons seeking to give their executives special gifts. The overuse of stock options hurts shareholder returns. Giving them should require approval at a shareholders meeting in order to reduce the possibility of controversy. It is not desirable to have executives who possess stock options obsessed with scoring short-term accomplishments. Legislators need to consider more carefully whether the proposed "thee years or more" requirement would prevent that from happening.
The reason there is so much controversy about stock options is because there are aspects of the practice that do not fit Korean circumstances. Prices on the Korean stock market fluctuate far more than other countries. The size of financial reward through stock options is determined less on the management's performance and more on other factors. That is something that needs to be dealt with by setting reasonable standards for the use of stock options, and if making the law make that happen is too difficult then establishing recommended guidelines and having at least state corporations follow them would be one way to go about it.
The best approach would of course be for companies to use them as they were intended. Tongil Heavy Industries recently gave 10,000 shares in stock options to employees even below the level of team leader. The thinking behind that is that all employees need to work together to improve performance. Executives at many companies sometimes reduced personnel in order to increase their stock options margin, so the approach taken by Tongil fits well with conditions in Korea and is an attempt to use stock options as they were intended.
The Hankyoreh, 25 April 2005.
[Translations by Seoul Selection (PMS)]
[Editorial] 'Stock Options' System Needs Improvement. |
