Democrats Who Said "Let's Benchmark Hanwha"... Begin Legislation on 'Korean-Style RSU'

Democrats Discuss Revitalizing RSU-Based Stock Compensation System
Experts: "More Stable Than Stock Options... System Needed"
Kim Byung-wook: "Considering Mixed Use to Leverage Advantages Depending on Companies"

The Democratic Party of Korea has initiated legislation to expand the ‘Restricted Stock Units (RSU)’ system, a performance bonus scheme for executives at Hanwha Group. RSUs are a system where employees who meet certain conditions such as years of service, sales, or profits receive company shares at a specific future date instead of immediate cash bonuses. In October, the Democratic Party invited Lee Sung-soo, President of Hanwha Group, to the National Assembly to listen to his views on RSUs and has since begun formalizing the system.

On the 5th, Democratic Party lawmaker Kim Byung-wook stated at a forum held at the National Assembly Members’ Office Building on the theme of ‘Activation Measures for Stock Compensation Systems to Strengthen the Global Competitiveness of Korean Companies,’ “We need to compare and analyze cases such as South Korea, which has mainly adopted stock options, and the U.S., where the RSU system is well-established, to discuss which system we should adopt and how to provide institutional support.” He added, “We should also accept the positive aspects of ‘owner management,’ which has been taboo, such as bold decisions, strategic judgments, and large-scale investments.”

On the 5th, expert panelists are speaking at a discussion held at the National Assembly Members' Office Building on the topic of 'Measures to Revitalize the Stock Compensation System to Strengthen the Global Competitiveness of Korean Companies.' Photo by Heejun Jang junh@

RSUs first appeared in the 2000s as an alternative to performance bonuses or stock options. Large U.S. IT companies reduced labor costs by excessively issuing stock options that were not accounted for as expenses, which led to social criticism. Subsequently, the Financial Accounting Standards Board (FASB) in the U.S. changed accounting methods to recognize expenses at the time stock options are granted, weakening the advantages of stock options.

The RSU system, which emerged as an alternative at that time, is a compensation method where the company acquires its own shares and later grants them to employees based on conditions such as years of service, sales, or profits. Unlike stock options, which give employees the right to purchase shares at a predetermined price, RSUs distribute the shares themselves. This makes RSUs relatively less affected by stock price fluctuations and thus more stable.

However, there are criticisms that the RSU system has a high entry barrier for startup companies. Yang Jeong-sook, an independent lawmaker attending the forum, said, “Globally, the trend is moving toward RSUs for future industries that generate profits from a long-term perspective rather than short-term decision-making,” but she also noted, “It is difficult to apply RSUs immediately to companies such as ventures and startups that find it hard to turn a profit early on.”

RSUs Aiming for ‘Long-term Growth and Talent Retention’: Pros and Cons?

On the 5th, panelists are taking photos at a discussion held at the National Assembly Members' Office Building on the topic of "Measures to Revitalize the Stock Compensation System to Strengthen the Global Competitiveness of Korean Companies." Photo by Heejun Jang junh@

In the discussion based on expectations and concerns about the RSU system, Professor Park Tae-yoon of Sungkyunkwan University said, “Stock options have caused social controversies such as moral hazard for maximizing gains during option exercise, accounting fraud, and morale decline due to compensation gaps,” adding, “Compared to that, RSUs relatively prevent these issues and are effective for long-term performance management and motivation.”

Professor Kim Kwang-hyun of Korea University pointed out ‘potential concerns.’ He said, “When the economy is unstable, the risks of stock compensation increase, and if employees are overly sensitive to stock price trends, it can interfere with work concentration.” He especially noted, “From the perspective of large corporations, stock compensation can dilute existing shareholders’ equity, which may negatively affect shareholder value.”

The expert panel agreed that institutional foundations such as ‘disclosure’ must support the introduction of the RSU system into Korean companies to maximize its advantages. In the case of Hanwha Group, Kim Dong-kwan, Vice Chairman, has received RSUs worth about 30 billion won in current stock value from three affiliates over the past three years, and there is criticism that a significant portion of issued RSUs are received by Kim Dong-kwan and used as a means of succession.

In response, Professor Kim Kwang-hyun said, “Currently, there are no regulations or related systems for RSUs in South Korea,” and proposed, “Some regulations are necessary, but how about making ‘market-friendly’ decisions?” He explained, “Regulations can either prohibit certain actions or allow them freely but require detailed disclosure. Introducing the latter type of (passive) regulation, such as disclosure, could alleviate concerns about system abuse in the market to some extent.”

Discussions were also held on ‘Performance-based Stock Units (PSU)’ as an alternative to RSUs. While RSUs guarantee minimum compensation even if stock prices fall, this could lead to moral hazard by reducing work motivation. Therefore, it was suggested that introducing PSUs, which are based on ‘performance’ such as sales and profits rather than just ‘years of service,’ could resolve concerns about moral hazard. Professor Park Tae-yoon emphasized, “PSUs are linked not only to stock prices but also to performance indicators, which can motivate employees for long-term performance management.”

Democrats Push for RSU Institutionalization…Kim Byung-wook: “Let’s Leverage the Advantages”

Assemblyman Kim Byung-wook of the Democratic Party of Korea. Photo by Kim Hyun-min kimhyun81@

Currently, companies like Naver and Hanwha are recognized as early adopters of the RSU system in South Korea. At the forum, Hwang Soon-bae, Head of Human Resources at Naver, shared corporate experiences. Hwang introduced, “Although there are practical difficulties, Naver’s stock compensation program greatly contributes to responsible management by executives, retention of key talent, and a sense of unity through shared growth between the company and employees.” This year, Naver significantly reduced stock options from 400,000 shares to 110,000 shares and increased RSUs to 49,332 shares and stock grants to 210,000 shares, revising its incentive system accordingly.

Lawmaker Kim Byung-wook said, “RSUs guarantee basic profits even if stock prices fall, whereas stock options can become worthless,” but also suggested, “Some employees may prefer ‘high risk-high return,’ so since both have clear pros and cons, why not use them together?” Hwang agreed, saying, “While RSUs have the advantage of seeking long-term growth, there are concerns that they could cause moral hazard among management.” He added, “Next year, we plan to persuade the board of directors to operate both systems together.”

Meanwhile, Democratic Party lawmaker Lee Yong-woo, a member of the National Assembly’s Political Affairs Committee, has proposed a partial amendment to the Capital Markets Act containing legal requirements for the RSU system. While stock options have restrictions on recipients, limits, and exercise periods to prevent abuse by major shareholders, RSUs currently have no regulations. The aim is to dispel misunderstandings about some companies abusing RSUs and to prevent their misuse in succession of management rights by third- and fourth-generation chaebols through appropriate regulation.

Related legislation is also being pursued by the ruling party. At the beginning of this month, Han Mu-kyung, a member of the National Assembly’s Industry, Trade, Energy, Small and Medium Enterprises Committee from the People Power Party, introduced a partial amendment to the ‘Special Measures for the Promotion of Venture Businesses Act’ to provide a legal basis for unlisted venture companies to utilize RSUs.

This content was produced with the assistance of AI translation services.