By Yoon Ja-young
New government plans announced Monday to encourage stock ownership mean that workers who purchase shares of their own companies will get tax deductions. Businesses allowing employees to hold company shares will also receive incentives.
The country adopted the employee stock ownership program back in 1968, but it has not been popular ― only 0.6 percent of companies adopted the program, with workers holding only 1.29 percent of all stakes, on average.
Song Hong-sun, a research fellow at the Korea Capital Market Institute, explained in a report that employees fear that they can sustain losses in case the stock prices fall. “If the company falls into trouble, the workers have to sustain double the risk of losing a job and the financial loss from corporate stock ownership,” he said.
Employees also doubt whether they would be able to cash the stocks immediately when they need money.
The government is planning to encourage the program by displaying that it can be a win-win for both employees and businesses, increasing the income of the workers, as well as enhancing competitiveness of the business.
Analysts explain that businesses can expect a smoother labor-management relationship. When Hyundai Motor and Kia Motors were both faced with wage negotiations last April, there was a fear it could end up with strikes. Foreign investors, however, sold shares of Hyundai while buying shares of Kia. The difference between the two companies was that Kia workers had bought 1.41 percent of the stake through the stock ownership program. “The workers are likely to hesitate over a strike as it will negatively affect the corporate performance, as well as the stock price,” Suh Sung-moon, an analyst at Korea Investment and Securities, explained.
If workers hold corporate stocks for over six years, they will be exempt from the working income tax. They can also make monthly installment payments to the employee stock ownership fund to buy shares, in which case they will get up to 4 million won income deduction in the year-end tax settlement. “If a worker whose annual salary is 50 million won buys 4 million won shares, he or she can save up to 900,000 won in taxes,” the spokesperson for the labor ministry explained.
The government plans to introduce financial products through which the workers can hedge against the loss from falling stock prices.
A stock transaction platform for employees to buy and sell stocks among themselves will also be set up.
Businesses, meanwhile, will get tax incentives if they use part of the corporate profit to fund the employee stock ownership fund.
They will also be allowed to use the stocks as incentives to compensate high-performing workers.