Going forward, when corporations disclose executive compensation, they must present performance indicators alongside it. The move is intended to help investors assess the appropriateness of executive pay more rationally.
The Financial Supervisory Service said on the 27th that it will revise corporate disclosure forms as a follow-up to the "Measures to improve corporate disclosure to enhance access to capital markets and protect shareholder rights." The revised forms will take effect May 1 and, for corporations with a December settlement of account, will apply starting with the semiannual report prepared and submitted as of the end of June.
Investors have pointed out that it has been difficult to determine the linkage between corporate performance and executive compensation. While major countries including the United States disclose time-series analyses of the correlation between pay and financial performance, many said related information in Korea has been limited.
Accordingly, the Financial Supervisory Service revamped the "compensation of executives" section in business reports to present the total compensation of directors and auditors in comparison with corporate performance indicators. Operating profit and total shareholder return (TSR) will be used as performance metrics.
To improve investor understanding of compensation tools whose use has recently expanded, such as restricted stock units (RSUs), items related to compensation disclosure will be further detailed.
First, when disclosing executive compensation, corporations must separate stock-based compensation already reflected in total pay from stock-based compensation not yet granted. This allows investors to distinguish between compensation actually received by executives and compensation they may receive going forward.
In addition, at the bottom of the individual compensation payment amount form, the status of stock option grants and other stock-based compensation grants such as RSUs will be placed separately. Also, for a range of stock-based compensation beyond stock options, including RSUs, corporations must disclose the specific calculation criteria and methods.
Along with this, to enable comparisons of changes in executive compensation by year, the disclosure period will be expanded from the current fiscal year to three fiscal years.
The Financial Supervisory Service said, "We expect this revision of disclosure forms to contribute to objective and rational evaluations by investors regarding the appropriateness of executive compensation," adding, "We will continue to identify and improve revisions to corporate disclosure forms to protect the rights of general shareholders and enhance transparency in corporate management."