[FOUNTAIN]Should shares be offered as an incentive?Chief executive officers of American corporations make far more money than the chief executives of other countries make, thanks to the stock option package that is common at American companies.
In 1998, American chief executives enjoyed some of the most generous stock options. That year, the average income of chief executives of the top 429 American companies was around $30 million, and a large portion came from stock options. Millard Drexler, chief executive of the Gap clothing stores at the time, received $7.8 million in salary and bonuses, but his stock options were worth $488 million as the stock soared that year.
We often say it is unwise to do business with friends because you might lose the friendship over money. When money is involved, maintaining personal relationships becomes harder.
Then how should management executives of a corporation be elected? If the founder is not running the business, the company has to be managed by a third person.
By promising a certain share to the chief executive when the stock price rises, the stock option encourages chief executives to manage the company as their own and on behalf of the shareholders. Venture startups, which don’t have sufficient funds immediately, often promote stock options when they wish to scout talent. Chief executives are often criticized for pocketing too much money through stock options. However, stock options are still used as a means to attract competent chief executives and brains.
Some Korean executives became rich by exercising their stock options. The total value of the stock options of the Samsung Electronics executives and employees reportedly exceeds 1 trillion won ($1 billion). The issue of the Woori Finance Holdings executives’ giving back stock options has recently created controversy. The Korea Deposit Insurance Corporation, the largest shareholder of Woori Finance Holdings, played a key role in making the executives give in.
The Korea Deposit Insurance Corporation insists that a bank that has received public funds is different from other banks. They concluded that it is inappropriate to pay a large sum to the executives from the public fund. However, many people are concerned that offering billions of won to the executives as stock options could lead to a better management, and the government could retrieve several trillion won as a result. In the bitter reality, the crooked envy and sense of equality might come before an additional recovery of public funds.
by Lee Se-jung
The writer is an editorial writer for the JoongAng Ilbo.