Employees Set To Be Allowed To Buy Company Shares At Less Than Market Value

Starting next year, stock option-based employee ownership of stocks will be introduced to the country. Stock options, which allow employees to buy their companies’ common shares at a fixed price have been limited to executives of large conglomerates and employees of venture capital-based companies.

Stock option credit, which has allowed only unlisted companies’ employees to buy their companies’ shares with the credit their employers offer, will expand into listed companies.

The tripartite commission of Republic of Korea announced an agreement on June 30, centering on the introduction of such plans.

“By introducing these plans, employees can increase their assets with their companies’ shares, and employers can stabilize wage bills and improve productivity,” said Kim Won-bae, a tripartite commission member.

The government will introduce the plans next year after submitting an amendment of the Employee Basic Welfare Law, backed by related government departments, to the National Assembly

Stock option-based employee ownership will affect all companies where employee-stock holders unions have been formed or will be formed. Twenty percent of issued common shares can be used for the plan through a stockholders’ decision, or through the decision of board of directors in case the volume is less than 10 percent of common shares issued.

Under the agreement, options worth less than 6 million won will be offered to employees at less than market value. The employees can exercise the option after three years (a one-year moratorium and a two-year entitlement period).

Like the stock option plans currently in use, employees may renounce the right to call if their shares fall below the option price.

Credit-based employee ownership of stocks allows employees to buy their company stock with the credit arranged by their employers. Employees pay the loans with dividends on the shares.

The government will revise tax laws to take the difference between market value and the exercise value as a loss in its corporate tax accounting, and to exempt transfer taxes if a retiring employee transfers his or her stock option to employee-stockholders union.

As of late 2003, there are 2,136 employee-stockholder unions with a membership of 950,000. About 30.7 percent of public companies have the unions. About 30.7 percent of KOSDAQ-listed companies have them, while 38.6 percent of unlisted companies have them.

Some raises concerns that stock option-based employee ownership will increase the gap between rich and poor among employees since it is possible only at financially sound companies.

Stock options allow employees the right to buy stocks at a fixed price and to sell them after a certain period of time. If the share price goes up, employees exercise the option and keep the difference. If the share prices go down, they renounce the right to buy.

Jong-Hoon Lee taylor55@donga.com