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[EDITORIALS]Rethink Bank Stock Options

Apr 27,2001
Executives of eight banks funded by public money of 40 trillion won ($30 billion), including Cho Hung and Korea First banks, reportedly hold stock options allowing them to buy a total of 9 million shares at a price of 5,000 won two to three years later, revealing serious improprieties at insolvent banks.

There may be executives who do not stay in their jobs the required two years to exercise stock options. Because the stock option exercise prices may go up and the number of shares that can be purchased may be reduced when a bank reduces its capital, the projected profit may be lower than our forecast. We also understand that stock options are necessary for insolvent banks to attract top managers. Our criticism, however, is that banks which received public funds should have been stricter about planning the issuance of stock options.

Stock options are rewards for successful management given to the managers who accomplish their goals. But rising share prices at banks given massive amounts of bailout funds cannot be attributed to good management alone. Therefore, bank executives should have designed their option plans not only to meet the minimum requirements of the law, but to comply with the original intentions behind the issuance of stock options.

For example, the price at the time of exercising stock options should not be defined by the face value of the shares, but should also be related to the market price of other bank shares in order to reflect the relative soundness of the institution. The period of service at the bank required to exercise stock options should have been lengthened, rather than only meeting the minimum legal requirements. It is no wonder that there has been fierce public criticism of the banks for this lack of ethics in setting their options programs.

Bank presidents still have time to redraw their stock options plans. The government, which is now a major shareholders of those banks, should also consider whether it has neglected its supervisory responsibilities. The government should review regulations on stock options to see if they are, in fact, appropriate.

If they are found not to be primarily for the purpose of increasing share prices, then the government should exercise fully its rights as a shareholder.



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