As the government emphasizes strengthening the stewardship code (institutional investors' fiduciary duty) as one of the measures to revitalize the stock market, some say the transparency of disclosures on listed companies' executive compensation should be enhanced to that end.
Under the current disclosure system, institutional investors find it difficult to properly understand the compensation structures of investee company management. The view is that improving this would enable institutional investors to exercise their voting rights more actively.
According to the financial investment industry on the 21st, there is growing support among institutional investors for making listed companies' executive compensation disclosure standards more specific.
For institutional investors, executives' compensation structures are regarded as information that can indirectly assess a company's financial soundness and management efficiency. However, it is practically difficult to obtain concrete information to assess this.
Under current disclosure rules, listed company executives' annual pay is disclosed individually only for those receiving at least 500 million won through the annual business report. Executives below that threshold are disclosed as an "average annual salary per person." It is a structure that makes it difficult to grasp the compensation received by individual executives in detail.
An institutional investor representative said, "Aside from disclosures, institutions also face limits in accessing information on listed companies," and added, "Because executive pay is an indicator that can shed light on a company's financial soundness and management efficiency, we have been consistently asking the financial authorities to expand the scope of executive pay disclosures before strengthening the stewardship code."
Financial authorities previously strengthened disclosure rules on management compensation. In 2013, after controversy erupted over excessive pay for large corporate management, they mandated individual disclosure for high earners receiving at least 500 million won, and since 2018 have required separate disclosure of the average annual salary for non-registered executives.
However, many institutional investors say sufficient information still is not provided. Moreover, the underdeveloped disclosure rules appear to undermine the effectiveness of the stewardship code. The stewardship code system was introduced with the intent that institutional investors would serve as monitors of corporate management, but its role is still viewed as limited.
The Financial Supervisory Service began reviewing reform plans last year regarding the executive pay disclosure framework. However, no specific direction has been announced. It also says no decision has been made on whether to disclose individual executives' annual pay.
A financial authority official said, "Since last year, in connection with the push to strengthen the stewardship code, we are well aware of the criticism that disclosures focus on aggregates of executives' pay and lack disclosure of individual pay," but added, "Nothing has been decided specifically."
Corporations say that disclosing all individual salaries of management could dampen corporate activity. They also argue that, compared with overseas disclosure standards, the scope of information disclosure in Korea is actually broader.
A finance executive at a listed company said, "In the United States, disclosure covers only the CEO, CFO, and the next three highest-paid executives," and emphasized, "Considering the actual pay levels, the domestic standard is by no means low."