Interlocking Global Business Systems: The Restructuring of Industries, Economies and Capital Markets

By Edward B. Flowers; Thomas P. Chen et al. | Go to book overview

150% of the lowest exercise price), the exercise prices should be segregated into ranges that are meaningful for assessing the number and timing of additional shares that may be issued and the cash that may be received as a result of option exercises. The following information should be disclosed for each range: the number, weighted-average exercise price and weighted-average remaining contractual life of options outstanding and the number of options currently exercisable and their weighted-average exercise price.

Since 1993 the Securities and Exchange Commission (SEC) strengthened the requirement of a public announcement associated with stock options in the United States and this has been reflected in the disclosure requirement of SFAS 123. The disclosure requirement in Korea must also be quite strict to protect investors and to prevent the abuse of stock options.


CONCLUSIONS

Although the Korean economy has advanced rapidly so far, there is no guarantee that Korea's remarkable growth rate will continue. The world economic environment is changing so dramatically that world scale borderless competition is imminent. Joining the OECD will also speed up the process by which Korean opens its economy to the rest of the world.

The changing international business order demands that Korean firms shift their paradigm from that of sales maximization to that of value maximization. Only firms which create real value by adopting VBM strategies can survive in the new world of severe competition. One of the most important substructures of the VBM is its plan for managing human resources, especially the plans for a compensation system, which is closely linked, to the performance of the individual.

An important line in the chain of new policy aimed at improving the competitiveness of its economy is the Korean government's announcement on September 3, 1996 that it would amend the law to allow Korean firms to introduce stock option compensation plans. So far, firms using stock options in Korea have been primarily foreign affiliates or subsidiaries such as DuPont Korea (Global Sharing), Daewoong Lily (Global Shares), Hewlett Packard, PhilaKorea and Motorola Korea ( Chosun Daily 1996). However, Korean firms, especially recently formed venture businesses such as Hangul and Computer and Web International, also show a strong interest in introducing stock options to their firms ( "Small- and Medium-Size Firms?," 1996).

Constructing a performance-based compensation system is a matter of life and death for Korean firms. The Korean government has almost completed the revision of its laws related to stock options. But detailed regulations to implement the laws must be ironed out before a closer examination of the effects of stock option compensation plans is possible. This chapter has examined the accounting and tax issues. It is no exaggeration to say that these issues are the most important of all for a successful introduction of stock options to Korea.

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