Contrary to their original intent of promoting efficient corporate management, stock options can actually undermine a company’s operational efficiency in various ways.
First, even within the same company, if the compensation of certain executives and employees increases significantly due to stock options, this can create a sense of relative deprivation and discord among employees who did not receive stock options. In fact, in 2005, the Samsung Group abolished its stock option program and introduced a long-term performance incentive system, citing the problem that the stock option system not only created a sense of alienation between employees of listed and unlisted companies but also allowed the size of compensation to vary significantly based on random factors—such as stock price trends and the timing of stock option grants—rather than management performance.
Second, employees of venture companies often find it difficult to fully realize the benefits of stock options in practice. For stock options to hold real value, the company must be listed on the stock market so that shares can be traded smoothly. However, it takes a considerable amount of time for venture companies to meet the requirements for listing, and in many cases, simply surviving during that process is no easy feat. Furthermore, prior to going public, it is difficult to objectively assess a company’s value, and even when net income is generated, profits are often reinvested in research and development and business expansion. Therefore, the likelihood that employees of venture companies will actually enjoy the economic benefits of stock options may not be as high as one might think.
Finally, the fact that stock prices are not determined solely by a company’s business performance is a fundamental limitation of the stock option system. Stock options are designed on the premise that a company’s value and its stock price will align over the long term; however, in the actual stock market, stock prices are influenced by numerous external factors beyond a company’s performance, such as interest rates, economic fluctuations, political and economic issues, industry outlook, and investor sentiment. Consequently, even with outstanding business performance, the stock price may not rise as much as expected; conversely, there are cases where the stock price surges due to external factors unrelated to the company’s intrinsic value.
In the past, AhnLab’s stock price surged when speculation arose that Ahn Cheol-soo, then Chairman of the Board, might enter politics. This example demonstrates that external factors unrelated to a company’s actual business performance can significantly influence its stock price. Ultimately, the stock option system has a structural limitation in that management’s efforts and compensation may not always align.
Thus, despite its original purpose of motivating employees and mitigating the principal-agent problem, the stock option system has various limitations and side effects. Of course, accounting standards and disclosure regulations are much stricter today than in the past, significantly increasing the transparency of stock option plans; however, criticism persists that a stock-price-centric compensation system can encourage management to focus on short-term stock price manipulation or lead to the dilution of existing shareholders’ stakes.
Furthermore, while many companies actively utilize stock options as a means to secure top talent, not all executives and employees fully understand the structure and risks associated with them. In particular, given that corporate value and stock price do not always align, there are cases where expected compensation does not translate into actual performance.
From the perspective of retail investors, stock options are a system that requires ongoing attention. While equity-based compensation can contribute to a company’s long-term growth, excessive use can dilute the value of existing shareholders’ stakes and may cause the compensation system to rely too heavily on short-term stock prices rather than the company’s long-term competitiveness.
Consequently, there are diverse viewpoints on whether stock options should be completely abolished. However, at the very least, companies must establish fair and transparent compensation systems that balance the interests of both employees and investors, and they need to actively explore various alternatives, such as long-term performance-based bonuses or performance-linked compensation.
Meanwhile, Apple co-founder Steve Jobs is often cited for the anecdote that he gave up his stock options and distributed them to employees. However, as the details surrounding this story have been reported in various ways, there is some controversy regarding the facts. Nevertheless, the lesson this example implies is clear: a company’s true competitiveness stems not from stock options themselves, but from the passion and commitment of its members toward the company’s growth, as well as from an organizational culture that generates sustainable performance.
