Korean Insurance CEO's Base Salary Accounts for 64%... Four Times That of the US

Korea Insurance Research Institute
'A Study on the Compensation System for Insurance Company Executives' Report

[Asia Economy Reporter Ki Ha-young] It has been pointed out that the compensation of executives at domestic insurance companies has a low correlation with performance, indicating the need for a systematic improvement.

According to the report "A Study on the Compensation System for Insurance Company Executives" published by the Korea Insurance Research Institute on the 16th, as of 2018, the proportion of base salary in the total compensation of insurance company executives was 68%. Among the remaining performance-based pay, the portion that is not paid immediately but deferred and paid over three years accounted for 50%, which was only 16% of the total compensation.

When reflecting all executive compensation from 2013 to 2018 over six years, the structure was analyzed as 64% base salary, 19% short-term performance bonus, and 17% long-term (deferred) performance bonus.

This structure contrasts with advanced financial markets such as the United States and Europe, where the proportion of long-term performance bonuses is high. From 2008 to 2018, compensation for executives at U.S. insurance companies consisted of 73% long-term performance bonuses, 16% base salary, 5% short-term performance bonuses, and 6% others.

The research team analyzed the correlation between the proportion of performance-based pay for domestic insurance company executives and the company's profitability and corporate value three years later, finding that the higher the proportion of performance-based pay, the higher the company's profitability and corporate value tended to be.

The report emphasized that the proportion of performance-based pay in executive compensation at insurance companies should be increased to enhance the correlation between compensation and performance. It suggested increasing the proportion of stock-based compensation (such as stock options and restricted stock) within performance-based pay to provide executives with incentives to improve corporate value from a mid- to long-term perspective. Additionally, it added that the proportion of deferred payment in performance-based pay should be increased to reduce executives' pursuit of short-term results or excessive risk-taking.

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