As SK Hynix's labor and management face last-minute struggles over stock-based performance bonuses, the preference for cash compensation in South Korea is seen as a key factor weakening the semiconductor industry's competitiveness. Concerns are growing that the massive profits, amounting to trillions of won, are being consumed as short-term cash expenses, undermining talent retention and future research and development (R&D) and capital investment capabilities.
According to industry sources, TSMC has significantly expanded its stock-based compensation program for employees since 2022. This initiative aims to prevent the departure of key engineers amid fierce global competition for talent and to align the interests of the state, corporations, and individuals.
TSMC operates an employee stock purchase program (ESPP) that supports 15% of the purchase price when employees buy company shares. Additionally, it offers restricted stock awards (RSA) to high performers, which are granted without charge but come with restrictions on selling for a certain period.
The stock-based compensation strategy has proven effective in reducing employee turnover. According to TSMC's sustainability report, the voluntary turnover rate for employees dropped from 6.8% in 2021 to 3.7% in 2023, following the implementation of stock rewards. The turnover rate for new hires within their first year also plummeted from 17.6% to 8.9% during the same period. Over 70% of employees are participating in the stock purchase program, effectively defending against attempts by competitors to poach talent.
Global tech giants are also leveraging stock compensation as a key strategy for talent retention and growth. Nvidia, in particular, has expanded restricted stock units (RSUs) to include all employees, not just executives and high performers. The significant rise in the value of shares granted upon hiring has provided strong motivation for long-term retention of key personnel.
A report from U.S. consulting firm Semler Brossy indicates that 95% of S&P 500 companies implemented performance-based stock unit (PSU) compensation as a long-term incentive last year, marking a rapid shift toward stock-based compensation compared to 76% in 2012.
In contrast, the South Korean semiconductor industry has a strong demand for cash-based compensation. Given the scale of performance bonuses, which can range from tens of millions to hundreds of millions of won, there is a greater incentive to secure immediate liquidity rather than future stock value. Recently, during negotiations between SK Hynix's labor and management, the company proposed stock-based performance bonuses, but faced pushback from the union, which insisted on cash payments.
Samsung Electronics reached an agreement in May to pay its special management performance bonuses in full with company stock in its semiconductor (DS) division, but some employees remain skeptical. Concerns about stock price volatility and a prevailing preference for immediate cash persist, along with resistance to management's approach of tying employees to the company as long-term partners through stock compensation.
However, industry experts warn that a cash-centric compensation model could impose significant financial burdens on companies. If substantial liquidity secured during prosperous times is drained as performance bonuses, it could deplete essential resources needed for R&D and capital investment during downturns.
Lee Jong-hwan, a professor at Sangmyung University’s Department of System Semiconductor Engineering, stated, "If cash is excessively drained during prosperous times, companies will lack the resilience to withstand downturns. A cash-focused compensation structure diminishes financial flexibility in the highly volatile semiconductor market and ultimately weakens the survival foundation for both labor and management."
* This article has been translated by AI.
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