[Editorial] Executive pay

By Korea Herald

Disclosure should not be a Pandora’s box

  • Published : Apr 2, 2014 - 20:27
  • Updated : Apr 2, 2014 - 20:27
Information about executive compensation at the nation’s major listed companies was released early this week. As had been expected, the data, made public as part of a regulatory filing, instantly became the talk of the town.

It is only natural that the public was drawn to the data because it was the first time that such information had been released. The new regulation was based on law revisions last November, which required listed companies to report financial compensation for executives who earn at least 500 million won in annual salary.

The regulatory scheme, which covered 292 executives this year, is intended to enhance transparency in corporate governance by disclosing how much each company pays its top executives.

Considering this, it is unfortunate that some have resorted to sensationalism and even fanned anti-business sentiment by highlighting only the size of the paychecks of high-paid executives and comparing them with ordinary workers.

It is understandable that the general public has mixed feelings about executives who receive up to tens of billions of won in annual salary and bonuses like SK Group chairman Chey Tae-won and Samsung Electronics vice chairman Kwon Oh-hyun.

Chey received 30.1 billion won in salary and bonuses from four companies, topping the list of high-paid executives, while Kwon came on top of the list of professional executives by pocketing 6.77 billion won. These sums are undoubtedly huge and far beyond what an average worker can earn in a lifetime.

But what matters should not be the level of the financial compensation for executives but whether it is appropriate in terms of their performance and whether it is set in a reasonable manner.

We cannot go against the global trend of offering generous incentives and rewards to talented executives. That the average executive salary at Samsung Electronics still remains one-eighth of that of its archrival Apple is thought-provoking.

There are still some problems, however, that need to be addressed, including the limitations in the regulatory filing of the executive compensation. For instance, the rule covers only those who registered as members of the board of directors.

This provides loopholes for, among others, families that own chaebol. Some even resigned as listed directors, apparently to avoid having to disclose their income under the new rule.

This must be corrected because many family members who control chaebol do not register as directors to avoid legal obligations and managerial responsibilities. A 2012 report of the Fair Trade Commission showed that there were only 86 owner family members among 1,515 registered directors in the companies belonging to the top five chaebol.

One solution could be requiring each company to disclose the financial compensation for a certain number of top paid executives whether they are registered members of the board of directors or not.

Correcting this and other problems is necessary to avoid having the new regulation become a Pandora’s box. Authorities should draw up further measures to minimize its negative effects and ensure that it fosters competitiveness among executives and corporate Korea as a whole.