Hanwha Performance Bonus 'RSU System' Explained... More Popular Than Stock Options [News Terms]

Hanwha announced on the 7th that it will reform its performance bonus system by expanding the 'Restricted Stock Units (RSU)' system to all affiliates. While the system had been gradually implemented for executives at affiliates such as Hanwha Corporation, Hanwha Aerospace, and Hanwha Solutions, starting next year it will be expanded to include team leader-level employees across all affiliates.

RSUs are a system where the company grants its own shares held by the company to employees who meet performance conditions such as rank, length of service, and sales. Unlike the existing performance bonus system that pays cash at the end or beginning of the year, shares are given only after a certain period, and transfers are prohibited for a certain period even after payment.

The advantage of RSUs is that if the company’s performance and value improve due to continuous performance by employees, causing the stock price to rise, the compensation at the time the actual shares are received can also increase in line with the stock price. On the other hand, if the stock price at the time of receipt falls below the current price, the compensation amount may decrease, and payment itself may be canceled depending on employee responsibility. Also, unlike stock options, which grant employees the right to purchase shares at a certain price, RSUs provide a minimum level of compensation even if the stock price falls.

Generally, companies set a long-term transfer restriction period for RSUs, which can lead to responsible management by executives and long-term retention of employees. It also prevents employees who receive shares from being obsessed with short-term performance creation.

RSUs were first introduced by Microsoft (MS) in 2003. In Korea, after Hanwha in 2020, large companies such as Doosan, LS Electric, Naver, and POSCO have adopted RSUs.

Some criticize that RSUs can be abused as a means of management succession. Kim Dong-kwan, Vice Chairman of Hanwha Group and third-generation owner, received about 39 billion KRW worth of RSUs from 2020, shortly after joining the company, until last year. In the long term, since his shareholding ratio gradually increases and it is advantageous for cash liquidity, there are concerns that Vice Chairman Kim may be using RSUs as a tool to strengthen his control over the group. In response, Hanwha stated, "The shares of Hanwha Corporation that Vice Chairman Kim will acquire by 2040 under the RSU system account for only about 1%, so the impact on management succession is extremely minimal," and added, "Excluding major shareholders from RSU recipients solely because they are major shareholders would unfairly discriminate against other employees."

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