[Gyeryuk Sinsae Woori Saju]② Need to Encourage Combined Approach of 'Company Contribution + Employee Investment'

US and UK Companies Buy Back Shares to Pay Retirement Benefits
Companies Also Grant Additional Free Shares for Employee-Purchased Shares

Editor's NoteThe Employee Stock Ownership Plan (ESOP) is a system designed to promote workers' welfare and improve their economic and social status. Although it is a system where workers acquire employee stock through corporate or government policy support, in reality, it does not significantly help workers build wealth. Since a large portion of employee stock is held at the workers' expense, it can even lead to financial losses. This is because, although the initial public offering (IPO) price is high, the stock price often falls below the offering price after the lock-up period ends. While funds flood the public offering market and company executives benefit, employees who received employee stock are left disappointed. There is a growing call to devise measures that increase workers' benefits in line with the original purpose of the ESOP system, which is to enhance worker welfare and corporate productivity.

The ESOP system began with the purpose of enabling workers to become shareholders and participate in management, sharing the company's performance and profits. However, in South Korea, since workers bear the burden of acquiring employee stock, the ESOP system has not significantly contributed to workers' wealth formation. In advanced countries such as the United States and the United Kingdom, companies repurchase their own shares to pay retirement benefits or provide additional shares free of charge in response to shares purchased by employees. Some large domestic companies also actively support employee stock ownership associations so that executives and employees can receive dividends as shareholders and gain capital gains from stock price increases, in addition to their earned income.

Noh Sung-kyu, head of the Employee Stock Ownership Support Center at Korea Securities Finance, said, "Employee stock acquisition should be encouraged through a method where corporate contributions and employee investments are combined (cooperative contribution)." He added, "Workers can contribute to management performance as internal shareholders while maintaining the tension of investors." Furthermore, he stated, "It is preferable to maintain continuity by acquiring employee stock regularly and periodically according to plans agreed upon by labor and management, rather than workers acquiring employee stock sporadically during company listings or capital increases and holding it for a short period."

U.S. and U.K. Companies Support Employee Stock Purchases Through Various Systems

The U.S. Employee Stock Ownership Plan is one of the corporate pension systems. The company regularly contributes to employees' individual accounts and promises to pay the contributed amount and investment gains to employees upon retirement or other qualifying events. A representative type of ESOP in the U.S. is the Employee Stock Ownership Plan itself. ESOP is recognized as an effective means for employees to supplement wage income through investing in company shares and achieve capital diversification. To promote employee stock ownership, ESOP trusts borrow funds externally secured by the company's credit to purchase company shares, and the company repays the loan with part of its profits.

The U.K. ESOP system is divided into Share Incentive Plans (SIP) and Stock Option Plans. Stock Option Plans are further divided into Save As You Earn (SAYE), Company Share Option Plans (CSOP), and Enterprise Management Incentives (EMI). The primary purpose of the Share Incentive Plan is to promote employee wealth formation through stock acquisition and enhance labor-management cooperation. It is similar to the domestic ESOP system in that a separate organization exists to distribute employee stock to workers. The system operates by either granting employee stock to workers free of charge or providing additional shares corresponding to those purchased by employees.

The Save As You Earn (SAYE) scheme is the most widely used in the U.K. It allows employees to save monthly amounts between ?5 and ?250 to purchase shares at a fixed price with up to a 20% discount. After a contract period of at least three years, employees can either acquire the shares, forgo the option, or continue saving.

Both the U.S. and the U.K. actively support companies in purchasing employee stock. Compared to South Korea, where employees bear the burden of purchasing employee stock during IPOs, these systems encourage long-term holding and reduce the possibility of losses.

Hyundai Motor, NH Investment & Securities, and Others Provide Various Supports to Employee Stock Ownership Associations

Among domestic listed companies, some actively donate treasury shares to employee stock ownership associations to boost workers' motivation and sense of ownership.

Korea Securities Finance, the dedicated institution for employee stock ownership, and the Ministry of Employment and Labor have annually selected and awarded excellent companies that have promoted workers' wealth formation and labor-management cooperation through the ESOP system since 2006. Hyundai Motor Company, through labor-management collective bargaining, has been contributing treasury shares to the employee stock ownership association as part of performance bonuses since 2019. The employee stock ownership association received employee stock for the first time in Hyundai Motor's history in 2019 and has continued to receive shares free of charge annually. The company bears the stock management fees and member management fees incurred during mandatory deposits. Regular free contributions have sparked interest in employee stock among members.

The individual contribution system for members is also implemented. Members voluntarily contribute up to 4 million KRW annually to the employee stock ownership association fund to acquire employee stock. They can receive income tax deductions and dividend income tax exemptions during year-end tax settlements. This system was first introduced in 2020, and contributions over three years have reached 124.4 billion KRW.

NH Investment & Securities also provides various supports to activate the employee stock ownership association. To reduce the burden on members who acquired employee stock, the company supports part of the loan interest on funds borrowed for stock acquisition until the loan is fully repaid during employment. The company's support for loan interest exceeds 800 million KRW annually. When NH Investment & Securities' stock price falls, collateral shortages on loans may occur. The company provides additional collateral to operate the employee stock ownership association stably without concerns about stock price fluctuations. NH Investment & Securities' employee stock ownership association received 7.7 billion KRW in dividends in 2020 and 2021 as a result of the "Employee Stock Ownership Campaign" in 2019 and 2020. Capital gains from stock price increases are also expected.

KOSDAQ-listed L&F believes that operating the ESOP system has increased employees' loyalty and helped executives and employees build wealth, and is pursuing various measures to activate the system. Until now, the ESOP system has been used only for subscription of pre-allocated shares, but going forward, it plans to diversify funding sources to include market purchases, exercise of employee stock purchase options, and company contributions. It also plans to strengthen education on the employee stock ownership association by promoting its purpose, operation methods, and performance during new employee orientation.

Lee Hyo-seop, head of the Financial Industry Division at the Korea Capital Market Institute, explained, "Although companies may incur short-term costs when contributing employee stock free of charge to workers, it can increase workers' motivation and sense of ownership, thereby enhancing the company's long-term productivity." He added, "It may also reduce enterprise-wide operational risks, such as a decrease in work-related accidents."