As of Sept. 16, Nvidia, which has maintained the No. 1 spot worldwide with a staggering market capitalization of 6,000 trillion won, has turned most of its executives and employees into the ultra-wealthy, yet they are still said to be suffering under heavy workloads.
According to Bloomberg, Nvidia employees are working in an intense environment where they not only work seven days a week, but sometimes have to work until 2 a.m. Nevertheless, the company records the lowest turnover rate. Observers say this is because CEO Jensen Huang emphasized that "making underperforming employees competent is more important than firing them," and introduced an unconventional compensation system that includes "restricted stock units (RSUs)."
An RSU is a compensation plan that grants stock free of charge to executives and employees who remain with the company for a set period. Unlike a stock option, which grants the right to buy shares later at a predetermined price (the exercise price), employees do not have to pay money to buy the shares. A stock option is useless if the share price does not rise above the exercise price. But an RSU generates revenue even if the share price falls because the stock is received for free. If the share price rises, the compensation naturally increases.
RSUs also have a relatively smaller impact on the share price than stock options. Because employees must use their own money to buy shares with stock options, when the price rises, option shares quickly become sell orders to realize revenue and are dumped into the market. That pushes the share price down and harms existing shareholders. However, because RSUs generally provide already-issued shares for free, the likelihood of mass selling when the price rises is extremely low. In the end, RSUs help defend shareholder value and can deliver revenue to employees regardless of the share price.
However, if a company issues new shares to provide RSUs, the increase in the number of shares can dilute existing shareholders' equity. RSUs were first introduced in 2003 by Microsoft to offset the shortcomings of stock options and have since spread to big tech companies such as Apple, Google, Meta and Tesla.
Stock options are a system that rewards a small number of key personnel who have contributed to the company's development, first introduced in the United States in the 1920s. They encourage a sense of ownership by sharing in the company's gains and help secure top talent. In Korea, the system has spread rapidly since being implemented in 1997 and has had a significant impact in fueling today's startup boom.
However, there have been many cases where the pursuit of only short-term, visible results backfired on the company's long-term growth, or where declines in share prices meant employees received no reward for their efforts. Volatility in the share price also split members' fortunes and became a source of conflict, and there were cases where the company fell into crisis due to stock options when the share price soared despite poor operating performance.
When startup valuations were surging, stock options were the mainstream form of compensation. Startups that could sell a vision of the future despite having little in hand were able to secure talent with the "carrot" of stock options. But the tide has recently turned. IPOs once taken for granted have been postponed indefinitely, and a series of companies have seen their valuations fall, rendering stock options that employees had eagerly awaited for years useless. As a result, more employees are giving up the stock-option "false hope" and changing jobs to boost their market value. Reflecting this trend, the scale of stock options has plunged nearly 80% compared with the peak in 2021.
Stock options are still widely used, but the era when they dominated globally has already passed. Countless corporations have studied various stock-based compensation systems as they ponder how to attract key talent and achieve high performance over long tenures. As a result, beyond stock options, numerous hard-to-pronounce and hard-to-understand stock-linked compensation plans have emerged, including RSUs, RS (restricted stock), PSUs (performance stock units), phantom stock and SARs (stock appreciation rights).
Although each system has pros and cons, RSUs are being adopted the fastest. This shift in compensation is no exception domestically. The scale of stock option grants continues to decline, and the number of corporations introducing or considering RSUs is surging. RSU adoption is spreading rapidly, centered on Pangyo Techno Valley. Even large corporations such as Hanwha Group, Doosan, POSCO FUTURE M, LS and Coupang are joining in. In April, Kakao's board passed an agenda item to "grant a total of 509,625 RSU shares to 3,775 full-time employees," changing the employee compensation program from stock options to RSUs. The condition is that "employees who remain with the company for more than one year after the grant date will receive 135 shares in treasury stock."
According to an announcement by the Fair Trade Commission, of the 88 large business groups with total assets of 5 trillion won or more in 2024, 17 have introduced RSU programs. Last year, an amendment to the Special Act on the Promotion of Venture Businesses allowed startups to use RSU programs as well. Previously, because companies could only acquire treasury stock if they had distributable income, venture businesses could not use RSUs, but the legal revision now allows RSU adoption by acquiring treasury stock even without distributable income.
Some worry that RSUs could be abused to strengthen control by owner families. Unlike stock options, RSUs can be granted to major shareholders, and there is no obligation to disclose even when they are granted to major shareholders. To quell such controversy, voices in the legal community are calling for an "expansion of disclosure obligations" and for commercial law and other statutes to stipulate the conditions for using the system and its limits.
However efficient an incentive program may be, what matters most is that if the company does not grow and revenue is not realized, it is meaningless. We wish for blockbuster success by K-startups that will drive the Korean economy.