Winning Talent Beyond Short-Termism with Long-Term Equity Awards

1. The Question Left by Korea's Semiconductor Bonus Fight

In early 2026, Korean industry was consumed by an argument over how to divide the spoils of a semiconductor boom. SK hynix, on the back of record earnings, paid bonuses worth as much as 3,264% of base pay and wrote the funding formula into policy at 10% of the prior year's operating profit (labor and management agreed to abolish the cap on profit sharing and fix the pool at 10% of the previous year's operating profit, The Seoul Shinmun, February 4, 2026). Samsung Electronics' semiconductor division faced a union demanding a similar profit-linked pool and came to the brink of a full strike.

Public opinion split in two. One camp asked whether pay of that scale and reach, concentrated in a single industry and a handful of firms, was appropriate at all. The other invoked the principle of shareholder capitalism: excess profit of that size belongs to the owners of the company and should be returned to them. Lawmakers were at that moment debating a mandate to cancel treasury shares, so the claim of employees and the claim of shareholders looked set on a collision course.

What deserves attention is how the collision was settled. In May 2026, Samsung Electronics and its union agreed to create a special performance bonus funded at 10.5% of business results, with the entire after-tax amount paid not in cash but in treasury shares (settled May 21, 2026, with the full after-tax amount delivered in shares subject to staged disposal over a set period).

The episode reveals a side of equity compensation, and of RSUs in particular, that Korea had not seen before. Until now RSUs were understood here as a retention device for senior executives, or as a way for biotech and tech companies short of cash to promise high reward potential instead. In this agreement, treasury-share compensation did something else. It reconciled inside a single structure two claims that had looked irreconcilable: the employees' demand for a share of the profit, and the shareholders' interest in protecting theirs. The question of talent competitiveness is moving from how much a company pays to how it structures what it pays.

This article begins by diagnosing the structural limits of a cash-centered total rewards system, which reinforces short-termism and weakens the pull that keeps people in place. It then defines the role of long-term incentives inside a total rewards portfolio, traces how equity compensation has evolved in Korea and abroad and what that evolution implies for shareholders, and closes with the principles that should guide the design of a shift.

2. The Structural Limits of a Cash-Centered Pay System

Pay Escalation as a Game of Chicken

Companies have traditionally solved attraction and retention through the competitiveness of pay, by offering more cash than the firm next door. As the contest for talent intensifies, however, no company can outbid every rival indefinitely. Escalation inevitably takes the shape of a game of chicken, and the payroll burden stays with the winner as much as with anyone else.

Korean companies used to answer this by deferring the cost into the future. High employment security and pay that rose with seniority substituted a promise of future reward for competition in the present. Under low growth and blocked promotion tracks, that promise has lost its credibility. Young workers now stay in their first job for an average of one year and 6.8 months, and the most common reason for leaving is dissatisfaction with pay and working conditions, at 44.4% (National Data Office, Economically Active Population Survey, Youth Supplementary Survey, as of May 2026, published July 2026).

Meanwhile the intensity of the competition has risen by an order of magnitude. The semiconductor industry is projected to be short of more than 50,000 workers by 2031. Some 16% of Korea's AI professionals have already left for jobs abroad (Bank of Korea, December 2025, which estimates that 16% of roughly 57,000 AI professionals in Korea have moved overseas). Across emerging technology fields as a whole, the shortfall is put at 580,000 people by 2029 (Korea Chamber of Commerce and Industry and KISTEP, December 2025).

More recently, foreign companies have set up bases in Korea to recruit core engineers directly, pushing the contest across national borders. Fighting that war on cash increases alone has become the most expensive and least sustainable strategy available.

When the Bonus Becomes a Hygiene Factor Instead of a Motivator

The second limit shows up in the bonus itself. Profit sharing is a worthwhile institution on its own terms, but the larger and more routine it becomes, the more its character changes. For employees a bonus stops being a question of motivation, of what to do in order to be rewarded, and becomes a question of comparison and fairness, of how much we receive relative to the company and the division next door. In Herzberg's terms, the bonus starts working as a hygiene factor rather than a motivator. When it is ample it is taken for granted. When it falls short of the comparison, it turns immediately into grievance and attrition.

The 2026 bonus season captured this in miniature. In semiconductors, a record payout became the reference level for the following year the moment it was paid, and escalated into a demand to institutionalize a profit-linked pool. In the same months the battery industry, caught in a downturn, paid no bonus at all, and some companies ran voluntary redundancy programs (NewDaily Economy, March 1, 2026).

The same profit-linked cash bonus produced a sharp jump in expectations and a push for institutionalization in the booming sector, and a sense of deprivation and departures in the struggling one. Volatility in profit is converted into volatility in labor cost, and then amplified into volatility in organizational conflict.

Cash incentives tied to short-term financial results also fix the organization's gaze on the short term. When pay is linked to measurable annual metrics, employees and executives alike move to optimize those metrics, and contributions that resist quantification are pushed aside: collaboration, the accumulation of technical capability, investment that pays off over years. Short-termism is not a matter of individual psychology. It is a product of the system the pay structure creates.

An Incentive That Disappears the Moment It Is Paid

The third limit lies on the time axis. Cash loses its incentive effect at the instant it is received. No bonus, however large, secures the following year of service, and a lump sum can just as easily become the seed money for a resignation or an early retirement. Newly listed companies where key people realized large gains on stock options and then left one after another show that badly designed pay can be the trigger for departure rather than a tool of retention.

In short, a cash-centered system is unsustainable in the contest for talent, tends to degrade into a hygiene factor in motivation, and loses its force at the moment of payment in retention. The problem is not the administration of any single program. It is the composition of the total rewards portfolio itself.

3. Redesigning the Total Rewards Portfolio Around Long-Term Incentives

The Empty Slot in the Total Rewards Portfolio

Seen through the lens of total rewards, each element plays a distinct role. Base pay is the hygiene factor that builds trust on the basis of market competitiveness. The annual bonus distributes and shares one year of results. Non-financial rewards such as benefits, growth and recognition sustain belonging and engagement. In most Korean companies, however, one slot in that portfolio is empty. It is the instrument that binds employees and the company to a shared value horizon longer than a year, the long-term incentive (LTI).

All three limits described above originate in that gap. Where no long-term incentive exists, the contest for talent expresses itself only as escalation in base pay and annual bonus, the sharing of results concentrates in cash settled every year, and nothing remains to hold people once payment is made.

The Main Types of Long-Term Incentive

Long-term incentives fall broadly into cash-based and share-based forms, with hybrids in between. The principal types and their characteristics are as follows.

Which instrument to choose depends on whether the company is listed, on the outlook for its share price, on its governance and on its cash position. For the purposes of this article, however, share-based awards sit at the center of the discussion. Because the value of the award stays tied to the value of the company for several years, they are close to the only instrument that performs both functions at once, sharing value over the medium and long term and retaining people. And as the next section shows, depending on how the award is funded, the effect on shareholders can be nothing like that of a cash payment.

4. From Stock Options to RSUs, and On to Performance Shares

Stock Options and RSUs

For a long time in Korea, equity compensation meant the stock option. Spreading with the venture boom from the mid-1990s, options were a powerful device that let cash-poor startups promise strong upside potential to good people without spending cash.

A stock option grants the right to buy shares at a set exercise price, so value arises only when the price rises above that level. An RSU (Restricted Stock Unit), by contrast, promises delivery of the shares themselves, conditional on vesting (the point at which the right to an equity award becomes fixed once a required service period or performance condition is met). Granted at the same fair value, the option delivers a larger gain as the price rises, but if the price falls the RSU still carries whatever value remains in the share. Lower upside, higher stability. The main differences are as follows.

From a shareholder's point of view the decisive difference is the funding. A stock option can be settled by issuing new shares, which has the same effect as a discounted rights issue and dilutes existing holders' ownership and per-share value. Much of the value of a newly issued option, in other words, is created at the expense of existing shareholders' wealth. An RSU is settled with treasury shares the company has acquired in advance, or in cash of equivalent value, and therefore operates on the founding principle of not encroaching directly on shareholders' interests.

How the United States Evolved by Learning From Its Own Mistakes

The United States, with the longest history of equity compensation, ran into the side effects first. In the heyday of the stock option, executives repeatedly gamed the system to maximize their spread, including backdating grants to a day when the price had been low. Through the Enron collapse and the global financial crisis came the Sarbanes-Oxley Act (the U.S. accounting reform act enacted in 2002 to improve accounting transparency and strengthen internal control after Enron's large-scale accounting fraud) and the Dodd-Frank Act (the financial reform act enacted in 2010 after the 2008 crisis, covering derivatives transparency and capital requirements for large banks), which institutionalized Say on Pay and gave shareholders a direct vote on executive compensation. Companies needed an instrument they could defend to shareholders, and the answer was the RSU.

The evolution then went a step further. When even time-vested RSUs drew criticism as pay unconnected to performance, performance share units (PSUs), whose delivered quantity is linked to business results, became the standard. As of 2025, 94% of the 250 largest U.S. companies by market capitalization grant performance-based long-term incentives, and 62% of CEO long-term incentive value is performance-based (F.W. Cook, 2025 Top 250 Report, November 2025: 62% performance-based, 23% time-vested stock, 15% stock options and SARs).

The most widely used metric is relative total shareholder return (relative TSR), which scales the delivered quantity by the company's TSR rank against a peer group. The design intent is to strip out the windfall that comes from a market-wide rally and align pay strictly with relative performance for shareholders.

The recent reversal is what makes the story interesting. More than a decade after performance conditions became standard, the United States is reexamining how well they work. An analysis showing that performance-based awards at S&P 500 companies have paid out at or above target roughly two thirds of the time prompted the criticism that performance design is in practice biased upward (Pay Governance analysis, cited in the Harvard Law School Forum on Corporate Governance, April 2026).

In response, proxy advisers in 2026 relaxed their policies to treat time-vested RSUs with a sufficiently long vesting period as equivalent to performance-based awards, and some large institutional investors now argue for long holding itself over elaborate performance conditions (Harvard Law School Forum on Corporate Governance, April 2026).

The American debate, in short, is not about abandoning performance conditions but about balancing more refined performance design with longer holding. Four stages of evolution are underway: from options to RSUs, from RSUs to performance shares, and now toward an equilibrium between performance linkage and long holding. That trajectory carries an important implication for how Korean companies should design their own programs.

Adoption and Regulatory Change in Korea

Korea's equity compensation landscape has been redrawn markedly over the past few years. Stock option grants, once the emblem of the venture ecosystem, peaked at about 2.7 trillion won in 2021 and then fell below 1 trillion won by 2023 (CEO Score, November 2023, reporting a decline from about 2.68 trillion won in 2021 to about 960 billion won in 2023).

Awards in actual shares have taken their place. A full review of listed companies' disclosures on the disposal of treasury shares finds that 64% of disposals since 2021 were made for employee performance awards (Leaders Fact, full review of 1,666 treasury share disposal disclosures by listed companies from January 2021 to November 2025, published November 2025). Among the 353 share delivery agreements at large business groups compiled by the Korea Fair Trade Commission, RSUs were the largest category at 188 (Korea Fair Trade Commission, Status of Share Ownership in Business Groups Subject to Disclosure 2025, September 2025).

Adoption across all listed companies, however, is still estimated in the low single digits in percentage terms, so it is more accurate to say that Korean equity compensation remains at the threshold of diffusion.

The regulatory environment is being organized quickly as well. The amended Venture Business Act that took effect in July 2024 introduced performance-conditioned stock, both RSAs and RSUs, as a statutory instrument, requiring a special shareholder resolution and excluding major shareholders and their related parties (Special Act on the Promotion of Venture Businesses, Article 16-17 and following, effective July 2024). From 2024 the Financial Supervisory Service and the Korea Fair Trade Commission have required detailed disclosure of share delivery agreements in annual reports and business group filings, raising transparency. The amended Commercial Act passed by the National Assembly in February 2026 goes further, making cancellation the default treatment for treasury shares while allowing an exception for employee compensation subject to shareholder approval (passed the plenary session in February 2026, with transitional provisions requiring treasury shares acquired before the effective date to be cancelled within a set period afterward; the effective date and detailed transitional provisions should be confirmed against the promulgated statute).

RSUs at ordinary listed companies still operate without an express basis in the Commercial Act, under the general principles governing treasury share disposal and remuneration regulation. The legislative direction, however, is clear. It is to institutionalize the use of treasury shares for compensation as a legitimate purpose exercised under shareholder control.

The pattern of diffusion is changing too. Hanwha Group, the first large Korean company to introduce executive RSUs in 2020, extended eligibility to team leaders from 2024. Of the 1,116 team leaders offered a choice between a cash bonus and RSUs, 88% chose the RSU (compiled from company disclosures and press reports; the tenfold-plus appreciation of early grants at companies including Hanwha Aerospace acted as a catalyst for wider adoption).

Eligibility is widening from executives to team leaders and general staff, and from large conglomerates to mid-sized firms. Samsung Electronics likewise introduced performance share units for executives, with delivered quantities determined by share price appreciation (News1, October 21, 2025, reporting a structure that delivers the agreed quantity at a 20% rise from the reference point and twice that at a 100% rise), and then extended the reach of equity to the entire workforce through the treasury-share special performance bonus described earlier.

Employees choosing shares over cash of their own accord, and the largest company by market capitalization placing equity at the center of its pay system, show that equity compensation has moved past the experimental stage of a few new-economy firms and is entering the mainstream of Korean pay design.

Behind the diffusion, however, lies a clear immaturity. Among listed companies disclosing equity awards, only 11 of 82 attached performance conditions (Korea Institute of Corporate Governance and Sustainability, analysis of 93 listed companies disclosing equity awards, April 2025).

Most Korean equity awards are simple time-based designs conditioned only on continued service. The performance linkage and long-holding devices the United States developed over more than a decade have not yet been transplanted. That is why maturity of design has to catch up with the speed of adoption.

The Dual Value of Treasury-Share Equity Awards

What this article wants to emphasize here is that equity compensation funded with treasury shares deserves attention not only from the recipients of pay but from shareholders. Discussion of equity awards usually centers on the recipient's upside. What stands out in the context of large-scale compensation, however, is a set of structural features that leave shareholder interests intact.

1. It is compensation without dilution. A newly issued stock option creates its funding by diluting existing shareholders' ownership and per-share value. An award settled in treasury shares draws on shares already issued, so dilution does not arise in the first place. The larger the award grows, into the trillions of won, the more decisive that difference becomes for shareholders.

2. Buying treasury shares is compatible with shareholder returns. A buyback made for compensation purposes cannot in itself be called a shareholder return, yet domestic and international empirical work consistently confirms that a treasury share acquisition disclosure sends a positive signal to the market, and the free float is reduced for as long as the shares are held (Ikenberry, Lakonishok and Vermaelen (1995) and others report significant abnormal returns following open-market repurchase announcements. Kahle (2002), however, showed that the market reacts relatively less to buyback announcements at companies carrying heavy employee option obligations, and in Korea the Korea Capital Market Institute (2022 to 2024) notes that the shareholder return effect materializes fully only when the acquisition leads to cancellation, which makes separate design of the cancellation portion and the compensation portion important).

   Above all, when the cancellation portion and the compensation portion are designed together inside a single acquisition program, the first functions as a return to shareholders and the second becomes a funding source for compensation that requires no new issuance, so the two purposes coexist without undermining each other. Paying out surplus profit entirely as a cash bonus leaves no room for that coexistence at all. This is precisely what opens a path to combining a shareholder return program and a compensation program in one structure.

3. It protects value held inside the company. The amount of cash leaving the company is no different whether it is paid as a cash bonus or spent buying treasury shares for delivery. What differs is where that value goes. Cash flows out of the company and is extinguished at the moment of payment, whereas shares turn the recipient into a shareholder and leave the value of the award tied to the company's share price. Recipients can protect the value of their own award only by protecting the value of the company, so the alignment of interests does not end at payment but keeps working throughout the holding period. The reduction in agency cost becomes structural rather than one-off.

4. It separates the profit cycle from the timing of the cash outflow. Because the company chooses when to acquire the shares and spreads delivery over several years, the arrangement becomes a buffer that smooths the sharp swings in labor cost a profit-linked cash bonus creates. One caveat applies. If the share price is elevated at the time of acquisition, wealth can transfer from remaining shareholders to recipients, so judgment about the timing and size of the acquisition has to be part of the design.

Samsung Electronics' special performance bonus, introduced at the start of this article, deserves a second reading in this light. Funding it with a fixed share of business results while paying the entire after-tax amount in treasury shares, allowing one third to be disposed of immediately and placing one-year and two-year holding periods on the rest, keeps the outward form of a profit-sharing bonus while converting the instrument of payment into shares in order to capture the effects described above. The staged disposal condition eases the supply pressure on the market and at the same time functions as a de facto vesting period and holding requirement. A scheme that emerged from labor conflict ended up designed at the point where the interests of labor, management and shareholders meet.

Samsung Electronics in fact announced a 10 trillion won buyback in November 2024 and cancelled a substantial part of it, and in 2026 disclosed a separate acquisition for employee compensation. On the trading day after the cancellation-purpose program was announced the share price rose about 6%, while the rise on the day the compensation-purpose acquisition was disclosed in March 2026 stayed in the 1% range, suggesting that the market distinguished between the two purposes (compiled from company disclosures and press reports).

Recycling treasury shares into compensation rather than cancelling them is, of course, a choice that gives back part of the shareholder return a full cancellation would deliver, and some observers worry about the volume that will reach the market once holding periods on large compensation-purpose acquisitions expire. That concern is part of the background to the recent Commercial Act amendment making cancellation the default. Yet in allowing employee compensation as an exception subject to shareholder approval, the amended Act can be read as formally recognizing the use of treasury shares for compensation as a legitimate purpose exercised under shareholder control (the exceptions under the amended Commercial Act cover support for the employee stock ownership association and business purposes set out in the articles of incorporation as well as employee compensation, and shareholder approval is required to apply them).

It is a structure that lets shareholders themselves choose, through the shareholder meeting, an exchange in which part of the return available from cancellation is given up in order to obtain an investment in human capital, the retention of key talent and the alignment of interests. How the cancellation portion and the compensation portion are allocated, and how holding periods are designed, determine the terms of that exchange.

5. Design Principles for the Shift to Long-Term Equity

On the basis of the discussion above, four principles should guide a Korean company designing a shift to long-term equity compensation.

Blocking Gaming Through Performance Conditions

What actually pays an equity award is not the share price itself but the movement of the price between grant and delivery. Recipients therefore have an incentive to depress the price at grant as much as to raise it at delivery, and that incentive grows stronger where the grant value is fixed and the number of shares is calculated from it. Linking the delivered quantity to preceding performance blocks this gaming structurally and filters out the windfall from a market-wide rise. As the American experience shows, however, performance linkage becomes a formality when targets are set loosely. Simple metrics and rigorous targets are the essence of performance design.

Sustaining the Incentive Through Overlapping Grants and Holding Requirements

So that the retention effect does not vanish at vesting, grants should be designed not as a one-off event but as an overlapping structure repeated every year. When a new three to four year award is granted annually, employees always hold an unvested balance, and the opportunity cost of leaving is maintained. Added to that, stock ownership guidelines requiring a portion of vested shares to be held are standardized enough that 88% of listed U.S. companies operate them (NASPP and Deloitte, Equity Administration Survey, 2025, in which 84% require the CEO to hold at least five times base salary). They prevent an immediate sale and exit after vesting, and tie the growth of company value to the growth of employee wealth. Building a holding incentive into the delivery stage, as Samsung Electronics did with its staged disposal condition, serves the same purpose.

Securing Employee Acceptance

Because equity compensation is unfamiliar to most employees, transparent communication about how awards are calculated, what the vesting conditions are and how they are taxed decides whether the program succeeds. Without a clear line of sight from what an employee does to how the value of the award changes, equity compensation will be read as one more opaque lottery ticket and will follow the same path into hygiene-factor territory. Eligibility and allocation criteria must also be defensible. Grants concentrated on major shareholders or on a particular tier undermine the legitimacy of the whole program, so disclosure and governance procedures should be put in place ahead of time.

Choosing the Instrument That Fits the Company

Not every company can deliver listed shares. Unlisted companies can use performance-conditioned stock under the amended Venture Business Act, or build the same incentive structure with phantom stock and stock appreciation rights (SARs) that pay cash in line with share value. For companies inside a group, consistency and balance across affiliates is the central issue, and selective grants focused on critical roles are a realistic compromise. What matters is not the form of the instrument but consistency of design purpose, which is to link the value of employee rewards to the value of the company over the medium and long term.

6. Beyond Short-Termism, Toward Pay and Shareholder Value in Sync

Shifting to long-term equity compensation is not a matter of swapping one pay instrument for another. It is a paradigm shift that moves the center of gravity of total rewards away from short-term financial results and cash and toward shared value over the medium and long term. However finely a cash bonus is designed, it is settled along with that year's results the moment it is paid, and it returns the employee's attention to the next settlement date. Equity compensation instead binds the value of the award to the value of the company for several years after grant, so that employees look at the company a few years out rather than at this quarter's metric. Overcoming short-termism begins with changing the time horizon of pay.

The other value of the shift lies in synchronizing pay with shareholder value. Equity compensation, especially when funded with treasury shares, is close to the only instrument that moves employee rewards and shareholder wealth in the same direction. Through funding without dilution, a design compatible with shareholder return programs, and alignment that persists after payment, employees receiving more and shareholders gaining more become one and the same event. The tension between the employees' share and the shareholders' share exposed by the semiconductor bonus fight was, in large part, the kind of tension that changing the form of pay can resolve. In any redesign of total rewards for sustainable management, long-term equity compensation is the axis on which that synchronization turns.

Korean companies have the advantage of arriving late. The dilution and gaming of newly issued options, and the limits of performance conditions that harden into formality, are all available as observable data from thirty years of American trial and error. If refinement of performance linkage and a culture of long holding are transplanted together from the outset, Korean equity compensation can move from the threshold of diffusion straight into mature design. Building that structure now, one that holds against both waves at once, an intensifying war for talent and widening swings in profit, and that aligns pay with company value in a single direction, is the shift this article proposes.