Stock Option Limit for Venture Companies Raised from 500 Million to 2 Billion Won... Enhanced Talent Attraction Measures

Expectations for Easing Talent Shortages Amid Stagnant Job Market
Concerns Grow Over Diminished Appeal as Exit Markets Remain Blocked

The government is set to significantly expand the limit on stock options that unlisted venture companies can grant to their employees. This move aims to enhance the competitiveness of venture firms in attracting talent, which has been notably lower compared to large corporations, by relaxing stock option restrictions and broadening available compensation tools. However, given the current diminished appeal of stock options themselves, experts point out that comprehensive improvements to the system are also necessary to ensure its effectiveness.

According to government sources on November 18, the Ministry of SMEs and Startups recently announced a draft amendment to the Enforcement Decree of the Special Act on the Promotion of Venture Businesses. The core of the amendment is to increase the recognized profit limit for stock options granted by unlisted venture companies to employees at a price below market value from the current 500 million won to 2 billion won. Specifically, the recognized profit calculated as "(market price on the grant date - exercise price) × total number of shares" will be expanded fourfold.

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The Ministry of SMEs and Startups explained, "The purpose is to enable venture companies and startups with limited financial resources to actively utilize stock-based compensation systems to attract outstanding technical talent," adding, "Through this amendment, we expect to encourage talented professionals to join venture companies and startups, thereby contributing to the creation of a sustainable, talent-driven venture ecosystem."

While general companies must grant stock options at or above market value, unlisted venture companies can apply an exercise price below market value if certain conditions are met, in order to secure innovative talent. This system is designed to help early-stage startups with limited capital secure key personnel based on their future growth potential.

The industry has welcomed the relaxation of stock option regulations. Lee Jungmin, Secretary General of the Korea Venture Business Association, stated, "To attract talent that would otherwise go to large corporations, significant compensation is necessary," adding, "For venture companies with limited financial resources, stock options remain a powerful tool for attracting talent."

Securing top talent is one of the biggest challenges for venture companies and startups. In a survey conducted by the Korea Venture Business Association last April, "strengthening support for securing and retaining outstanding talent" was cited as the second most urgent policy for the new government, following support for research and development (R&D). The startup job market has also stagnated. According to analysis by The VC, a startup investment information platform, of data from 5,800 Korean startups and SMEs that raised investment in the first half of this year, their total employment fell by 0.1% year-on-year to 190,000 employees. The net number of new hires (number of hires minus number of resignations) plunged from 33,489 in 2021 and 31,505 in 2022 to just 1,757 last year.

Some argue that, given the nature of stock options-where compensation only materializes upon an exit-the immediate incentive effect may be limited. The adoption of stock options is also declining as major exit markets such as initial public offerings (IPOs) and mergers and acquisitions (M&A) remain sluggish. According to data submitted to the office of Democratic Party lawmaker Jang Cheolmin by the Ministry of SMEs and Startups, the number of people receiving stock options fell from 15,055 in 2022 to 12,051 in 2023, and further to 10,655 in 2024. While expanding stock option limits clearly lays the groundwork for attracting talent, it is suggested that the measure will not be as effective as hoped unless exit markets return to normal.

An industry insider commented, "For initial founding members, stock options can be a meaningful reward, but from the perspective of all employees, the overall impact may not be significant," adding, "Efforts to create a market environment where stock options can be exercised, such as easing regulations on unlisted stock transactions, should be pursued in parallel."