SK 'Vice Chairman Stock Options' Opposed by Entire Board of Directors

The Only Rejection at the First Half Board Meeting
SK "Improvement Over Executive Compensation System"
Speculation on Link to Recent Stock Price Decline

SK Group's holding company, SK Inc., had only one agenda item rejected during the six board meetings held in the first half of the year. It was the proposal to grant stock options to Cho Dae-sik, Chairman of the SK Supex Council, and Jang Dong-hyun, Vice Chairman of SK Inc. Typically, agenda items submitted to the board have undergone sufficient prior discussion with the directors, so they usually pass. The fact that this agenda item was not approved is quite unusual.

This is an example that clearly demonstrates SK Group's 'board-centered governance.' It is the first time in three years since the rejection of the board regulation amendment in 2020 that an agenda item has been rejected by the SK board. Even SK Group Chairman Chey Tae-won opposed this case. What was the reason?

Stock options are rights to purchase shares at a predetermined price, commonly called 'stock options.' It is a type of performance compensation system where the difference between the exercise price and the market price of the stock can result in monetary gain.

Employees holding stock options are incentivized to increase corporate value rather than their own immediate benefit during their tenure, as they can only enjoy the fruits if the company grows. Since stock options can be given instead of wages, the cost burden is not significant, and many companies from startups to large corporations implement them. Stock options can also affect existing shareholders, so they are usually decided at the shareholders' meeting. The key point is that the benefit can only be realized if the stock price rises.

The proposal to grant stock options to Vice Chairmen Cho Dae-sik and Jang Dong-hyun also had to go through the board before being submitted to the shareholders' meeting. However, at the board meeting held on March 6, just before the shareholders' meeting, the agenda to submit the stock option proposal to the shareholders' meeting was opposed by all board members, including Chairman Chey, except the parties involved, and thus did not pass.

On the 16th, the scene of the fire at Building A of SK C&C Pangyo Campus in Seongnam, Gyeonggi Province. The fire, which occurred at around 3:30 PM the previous day at the SK C&C data center, caused the services of server tenants such as Kakao and Naver to go down one after another. In particular, Kakao services including KakaoTalk messenger, portal Daum, KakaoT, KakaoPage, and KakaoPay experienced widespread disruptions, resulting in a nationwide outage lasting about 10 hours or more. Photo by Hyunmin Kim kimhyun81@

Both vice chairmen had previously received stock options in 2017 and 2020 without opposition from the board. Vice Chairman Cho received 67,733 shares and 117,376 shares, respectively, while Vice Chairman Jang received 56,557 shares and 96,662 shares. However, the options were not actually exercised. Instead, they were paid in a cash-settled form, meaning they did not directly buy or sell shares but received the difference in cash from the company.

So why was it decided not to grant stock options this year?

SK explained that it was to establish a better performance compensation system. An SK official said, "There was an opinion that more time was needed to review the current system to improve the management compensation system, so the decision was postponed ahead of the shareholders' meeting," adding, "We plan to review which method, including stock options, is better."

A representative example of a company that abolished stock options is Samsung Electronics. In 2004, Samsung Electronics eliminated stock options for executives and introduced long-term performance incentives.

Long-term performance incentives are calculated based on evaluations such as return on equity (ROE), earnings per share, and pre-tax profit margin, using the three-year average salary as a basis, and paid evenly over three years within the director compensation limit set by the shareholders' meeting. It is a bonus for the past three years' performance, paid over three years. Even if an executive retires, they receive the long-term performance incentive. Since the reward is received in the future for work done now, it acts as a carrot to encourage more diligent work. In other words, it serves a similar role to stock options.

However, there is also speculation that this rejection was influenced by SK's recent stock price decline. SK's stock price has been on a downward trend this year. Starting at 185,000 KRW on January 2, SK's stock price rose to 200,000 KRW on January 27 but then declined to around 130,000 KRW recently. For stock options to be effective, the stock price must rise, but there is no sign of a rebound.

In particular, Chairman Chey Tae-won has repeatedly emphasized stock price management to the management team. SK has also reflected stock price management performance in the key performance indicators (KPIs) used to evaluate management performance. Last year, it was reported that the weight of stock price in the KPIs was increased from 30% to over 50%. In other words, if the stock price falls, management inevitably receives a poor evaluation. Given the stock price decline, criticism could arise that the management received stock options despite the drop.

Meanwhile, Vice Chairman Cho received 5.034 billion KRW in compensation in the first half of the year, becoming the only executive outside the group head to join the '50 billion KRW club.' Vice Chairman Jang also received a total of 3.786 billion KRW, including bonuses.

This content was produced with the assistance of AI translation services.