Creative Partners, Stock Options, How Much Should Be Granted to Employees?

Stock options are rights to purchase the company's future shares at a predetermined price, granted by the company to its executives and employees. Startups with limited capital actively utilize stock option systems to attract talented team members. Employees who receive stock options can exercise them later when the company grows, potentially gaining significant profits.

Recently, news such as "Stock Option Jackpot" and "IT Developers Making Billions" has highlighted the substantial profits made as growing companies go public. However, it is not feasible to distribute stock options to all employees without justification.

So, from the perspective of a CEO distributing stock options to employees, how should they be allocated? Junho Lee, an accountant at Creative Partners, a startup-specialized accounting and tax office, shared his opinion on this matter.

[Creative Partners, a Startup Specialized Accounting and Tax Office]

Accountant Junho Lee said, "It is not an easy decision for a CEO to decide to share the company's future value with members through the stock option system, but deciding who, how much, and in what way to distribute is also an important issue." He added, "Many startups want to grant stock options to their members and often request help in determining an appropriate limit. However, even experts from outside cannot make that decision on their behalf."

He also noted, "Although the granting conditions vary by company, within the limits set by the Venture Business Act and the Commercial Act, companies adjust the share ratio and exercise price within a maximum limit of 5-10% of shares, reflecting share dilution and management decision-making rights."

He pointed out the risks that arise when stock options are distributed randomly without considering share ratios. "In the case of investors, if a large portion of shares is distributed to employees, dissatisfaction can sometimes be observed," he said. "This is because distributing many shares dilutes the investors' shares, reducing their influence." He also added, "Equity fairness between employees who joined earlier and those who joined later is an important consideration."

[Photo by Clipart Korea]

Granting conditions must be meticulously prepared in detail

Accountant Junho Lee stated, "When granting stock options, it is necessary to carefully examine share ratio, exercise price, vesting period, expiration, and other clauses." However, he emphasized, "The most important thing is to accurately assess the company's future value." He concluded, "I hope companies consider how much of the estimated future value to grant to members."

The essence of stock options is a promise between the company (CEO) and employees, a commitment to mutually increase value. Operating the stock option system with this promise in mind will benefit both the company and its employees.