A proposal has been made to switch outside directors' compensation at domestic banking groups from the current performance bonus system to stock options.
Kim Woo-jin, senior research fellow at the Korea Institute of Finance, said on the 5th in a report titled "Improvement plan for the operating system of outside directors at domestic banking groups," "The compensation system for outside directors should be improved so that the interests of the board and shareholders are aligned."
Senior research fellow Kang explained, "The current compensation system for outside directors consists only of cash compensation, but going forward, it is necessary to consider changing the entire base salary to stock compensation and paying only meeting attendance fees in cash," adding, "It will serve as an appropriate safeguard that restrains the adoption of excessive dividends policies that undermine mid- to long-term sustainability and maximizes shareholder interests by enhancing corporate value."
He added that considering an incentive-compatible compensation design that aligns with shareholders' interests, such as a variable long-term performance pay system, would help with value-up and shareholder-centered value management.
He also said that while an overhaul of the evaluation system for outside directors is necessary, a revamp of the compensation system is urgent given the current shortage of the outside director pool.
Senior research fellow Kim said, "Outside directors should make efforts to secure procedural legitimacy—such as gathering sufficient information in advance before decision-making and exercising more prudent judgment—so they can be protected by the business judgment rule."