The information corporations must disclose when reporting executive compensation to investors will increase compared to now. Currently, the level of disclosure is limited to stating 'who received how much,' but in the future, there is a prospect that more specific details will need to be included, such as the criteria for setting the executive's salary and whether the relationship between performance and compensation is reasonable.
On the 17th, a senior official from the financial authorities noted that the government is preparing a plan to improve executive compensation disclosure, focusing on issues raised by the market and experts regarding executive compensation disclosure. The plan aims to significantly increase and specify the items that corporations must disclose.
Listed companies are disclosing executive compensation details through business reports uploaded to the Financial Supervisory Service's corporate disclosure system. The compensation of registered directors earning over 500 million won is disclosed individually, while an average salary per person is reported for all non-registered executives. The types of compensation include salary, performance bonuses, and retirement income. The total amount of executive compensation approved at the shareholders' meeting is also disclosed.
However, there has been no detailed explanation regarding the criteria for determining why this amount was paid to executives. Even if a listed company specifies the payment criteria, it only includes a general statement such as 'payments were made in accordance with compensation regulations.' This has led to a structure where shareholders find it difficult to raise objections even if an executive receives excessive compensation compared to performance.
As criticisms arose that executive compensation disclosure was ‘opaque,’ financial authorities began efforts to improve the system last year. They referenced the executive compensation disclosure systems of developed capital markets, such as the United States, to supplement the domestic system. In the U.S., the Dodd-Frank Act, enacted after the 2008 global financial crisis, mandates strict disclosure of executive compensation.
Based on advanced market examples, South Korean financial authorities are also expected to specify requirements for detailed disclosure concerning what the performance goals for executives are and which evaluation indicators were used to measure goal achievement. Observations suggest that information on the relationship between compensation and performance, as well as the compensation disparity between executives and regular employees, may also be included.
However, starting from 2022, the U.S. requires the compilation of the most recent five years of information regarding the compensation of major executives and financial performance to be disclosed in shareholder meeting notices. It is reported that the South Korean government has not considered going that far yet. There also appears to be no plan to impose disclosure obligations regarding compensation received from unlisted affiliates.
A financial authorities official stated, 'While it is important to enhance shareholders' right to know, we must also ensure that corporate management activities are not overly suppressed,' and added, 'We are seeking an appropriate compromise in between.' This official noted that 'the specific items to be included in the executive compensation disclosure improvement plan have not been finalized.'
Initially, financial authorities planned to announce the executive compensation disclosure improvement plan in June, but there is a possibility of delay.
Given the unexpected martial law situation, presidential impeachment, and the run-up to the June 3 early presidential election, it is uncertain whether the authorities will be able to announce as scheduled. A government official said, 'Right now, no one knows if policy announcements will proceed on schedule,' adding that 'reflecting on past situations right after a new government takes office, it doesn't seem likely to go smoothly.'