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27 June 2023




In February 2023, the Korean Financial Services Commission (FSC) launched a newly formed task force (TF) to improve the management, business practices, and relevant regulations of banks in Korea. As part of the opening remarks at its inaugural meeting, FSC Vice Chairman, So Young KIM stated that the TF, consisting of non-governmental experts, officials from the financial industry associations and research agencies, will review the introduction of shareholder votes on executive compensation, signaling the potential adoption of Say-on-Pay practices. 

The third Working Group gathering in March 2023 signaled an appetite to implement Say-on-Pay in Korea however, at the sixth Working Group held in April 2023, steps back were taken from adopting the practice. Instead, the TF decided to strengthen disclosure requirements and impose explanation obligations, which are mostly covered in the proposals to revise the Act on Corporate Governance of Financial Companies, submitted in June 2020. 



The current market requirements and practices fall short of providing opportunities for shareholders, and particularly international institutional shareholders, to voice their opinion on the suitability of executive compensation.  

The existing Commercial Act provisions indicate that director (and auditor) remuneration must be determined through the articles of incorporation or be approved by shareholders. In practice, however, only the aggregate maximum amount is presented for a shareholder vote each year leaving the individual payment/allocations up to the board’s discretion to decide within the approved limits. 

Furthermore, the Corporate Governance Act only requires the total amount of executive remuneration (including those serving outside of directorships) to be disclosed annually but with no obligation to include individual payment details.  

Since the information provided is limited, shareholders are unable to adequately monitor and evaluate whether the individual executive’s remuneration is appropriately set according to their respective roles, responsibilities, and performance. There are also conflict of interest risks as, in many instances, directors get to decide their remuneration themselves. 

Considerations under discussion 

Although the TF initially reviewed the introduction of shareholder votes on executive compensation, the TF’s focus has shifted to enhancing the level of disclosures. 

Under the proposed changes to the 2020 Corporate Governance Annual Reports, subject companies would be required to:  

  1. Disclose the total amount of executives’ remuneration on an individual basis, covering those who received compensation above a certain threshold - which is yet to be decided - and include the amount subject to performance, the evaluation criteria and calculation methodology; and  

  1. Outline the payment plans for each individual director at least once at a shareholder meeting convened during the executive’s term of office and provide details in the relevant meeting disclosures. 

The remuneration details and pay standards of individual executives will need to be disclosed at least 20 days prior to the general meeting date, and the payment plans must be included in the meeting notice. 

In comparison to some foreign markets where Say-on-Pay indicates a shareholder vote on executive compensation (regardless of its binding effect), this approach might seem inadequate. However, considering distinctive setbacks in disclosure practices in Korea, these changes are viewed as an integral step towards reinforcing shareholders’ rights to have a say in companies’ remuneration practices.  

 At-Risk Remuneration 

In addition to Say-On-Pay, the TF also discussed measures to prevent incentivizing short-term results which leads to excessive risk taking.  

Currently, the market already has institutional frameworks to apply effective risk adjustment provisions such as pay deferral, malus or clawback policies in the Corporate Governance Act. Despite such arrangements, many companies incorporate these only to meet minimum standards or, at times, delegate to the remuneration committee to evaluate instances on a case-by-case approach without clear internal standards in place. 

Considerations under discussion 

To improve current practices, it’s being discussed to: 

  • Extend the proportion of incentives subject to deferrals to motivate the pursuit of long-term performance. In detail, TF is considering raising the minimum deferral rate and period from 40% to 50% and from 3 years to 5 years respectively, with exceptions applied. 

  • Encourage each financial company to establish and operate with clear and detailed internal standards on withholding, malus, and/or clawback policies. This may be managed by the remuneration committee under obligations to build internal controls in advance. 


When taken into effect, the proposed revisions would have clear benefits in improving the disclosure practices of the Korean banking sector. 

Currently, the analysis and voting decisions on the director’s remuneration are being made without pertinent information on management compensation, pay mix, incentive structures, or individual pay plans. After the proposed revisions are implemented, the pay practices of each company should become more transparent, enabling shareholders to make their voting decisions on a more informed basis. Subsequently, this will also motivate companies to focus on developing remuneration structures that are fair and equitable, and aligned with the interests of their shareholders.  

On the other hand, there are still some concerns around the practicality in bringing about change.  Without the need for shareholder approval, the proposed suggestions may not be effective in influencing the actual pay practices of companies. Although shareholders may voice their opinion by voting on the existing ‘director remuneration limit’ agenda, its direct influence over details of remuneration structures will still be limited. The current agenda item on ‘director remuneration limit’ only covers the aggregate fee limit of board members, leaving out individual allocation details or those of other highly compensated executives that do not serve on the board. As such, individual payouts will remain heavily reliant on internal decisions, outside of shareholder control. A negative consequence for companies and their Boards may be the targeting of individual directors up for election at shareholder meetings as an alternative avenue for investors to voice their concern on remuneration practices and/or outcomes. 


In the United States, where the Say-On-Pay concept was implemented over two decades ago, ISS and Glass Lewis use both quantitative and qualitative assessments to measure the alignment between pay and performance, and use Peer Comparison as a vital indicator in their quantitative approach. 

The analysis of Say-On-Pay may also influence other agendas as well. For instance, if a company fails to take appropriate follow-up action after receiving support of less than 70% on Say-On-Pay, ISS’ voting policies indicate that compensation committee members, and in extreme cases the entire board, may receive an against vote recommendation. 

Both ISS and Glass Lewis have their own methodologies for analyzing Say-On-Pay proposals that require the accumulation of a decent amount of data over a certain period. Accordingly, if the enhanced disclosure rules are enforced starting in the 2024 AGM season, proxy advisors are expected to take additional time to gather market specific data to establish and apply the new evaluation standards. Once the amendments are finalized, it will be important to see what revisions are made to the proxy voting guidelines. 


The FSC’s discussion on this matter is still ongoing and application details are limited only to financial companies. As such, it is a bit premature to forecast its impact on the entire market. However, we suspect it has the potential to be applied beyond financial companies in the longer term. Acknowledging that there have been precedents of new rules targeting financial firms to later be extended to all listed companies in Korea (such as in the case of the independent director tenure limits), it is possible the TF’s improvement proposals will eventually become applicable to the rest of listed companies in the market beyond banks. 

Despite many uncertainties, the goal is clear: To enhance transparency and increase shareholder scrutiny of remuneration practices in Korea, ultimately to alleviate perceived governance problems. The FSC’s discussions will continue to progress towards this goal. As such, it is worth keeping an eye out on its progress as it may bring impactful changes to the Korean market going forward. 

Reference & Sources 

Financial Services Commission, Review of Pay Performance Regulation Improvements according to the Corporate Governance Act (Link

ISS United States Proxy Voting Guideline (LINK

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