As Samsung Electronics' stock price has surged into the 160,000-won range, there is a view that executives who received company shares as bonuses could face an unexpected tax burden.
Taxes were levied with the stock price more than tripled from when the bonuses were agreed to in January last year, and the shares received cannot be sold for one year. In the worst case, there are concerns that the tax burden could exceed the actual compensation in hand.
According to the financial investment industry on the 1st, Samsung Electronics paid executives at the start of this year the excess profit performance bonus (OPI) company shares that were agreed to in January last year. Samsung Electronics has required executives, by rank, to receive a certain percentage of the OPI in company shares (50% for senior vice presidents to 100% for registered executives). The move is seen as aiming at responsible management and enhancing shareholder value at the same time.
However, the "taxation point" is cited as the problem. Taxes are imposed based on when the shares are actually received, not when they are agreed to. Under tax law, performance bonuses received in company shares are regarded as earned income at the market price on the day the shares are deposited into the individual's account.
At the beginning of last year, Samsung Electronics' stock price was in the low 50,000-won range, but on the 30th it closed at 160,500 won on the back of the artificial intelligence (AI) semiconductor rally. As the stock's value has more than tripled compared with when it was agreed to, the amount of income tax executives must pay has increased accordingly.
Most Samsung Electronics executives fall into the upper brackets of the progressive tax rates on earned income (35%–45%). Adding local income tax equal to 10% of income tax, they may end up paying an amount close to half the value of the shares in taxes. Some executives are reportedly even having to consider separate loans to cover the tax payment.
The "lockup" rule is also an issue. Even if they receive shares, a lockup period (one year) applies under the principle of responsible management, so they cannot sell immediately. Even if they pay taxes first based on the current stock price, if the price falls a year later, the actual profit executives take home could drop sharply.
Perhaps mindful of such side effects, Samsung Electronics abolished the mandatory receipt of company shares for executives starting this year. Executives can now choose the proportion of company shares to receive in the same 0%–50% range as employees. Receiving the full amount in cash has also become possible.