Financial Supervisory Service Revises Stock-Based Compensation Disclosure Form to Monitor Abuse of Major Shareholder Equity Expansion

Financial Supervisory Service, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

On the 19th, the Financial Supervisory Service announced that it has revised the disclosure forms to ensure that companies sufficiently disclose information related to stock-based compensation. The revised disclosure forms will be applied starting at the end of this year.

Stock-based compensation refers to the payment of company shares or equivalent cash to employees based on conditions such as a certain period of service or achievement of performance targets. Recently, the use of stock-based compensation, including stock options, has increased as companies seek to secure talented personnel.

However, unlike stock options, which have legal grounds and regulations, other types of stock-based compensation are not subject to separate restrictions. As a result, concerns have been raised that these could be misused as a means for major shareholders to expand their stakes. From a disclosure perspective, only partial information could be confirmed through notes to financial statements, making it difficult to grasp the basis, procedures, payment status, or details granted to major shareholders, and there were limitations in comparing companies.

Accordingly, the Financial Supervisory Service decided to revise the disclosure forms for business reports, major event reports, and large shareholding and stock ownership status reports to enable the disclosure of related information, with implementation scheduled for the end of this year.

Going forward, the status of stock-based compensation systems must be recorded by type in the sections on executive compensation in business reports and quarterly and semi-annual reports. For each stock-based compensation system operated by the company, specific details such as the name, basis and procedures, number of recipients and shares granted or paid, payment conditions, number of shares paid or unpaid, and the presence or absence of transfer restriction periods must be clearly stated. This requires regular disclosure of the overall status of stock-based compensation systems, but does not involve recording individual grant or payment details. However, if payments were made to major shareholders, the grant and payment status by each major shareholder must be recorded in the "Transactions with Major Shareholders, etc." section.

Additionally, if a decision is made to acquire or dispose of treasury stock to pay stock-based compensation, this fact must be stated in the "Major Event Report," and employees of listed companies may also have a large shareholding reporting obligation once their right to receive shares under stock-based compensation is confirmed.

Furthermore, if there are transfer restrictions on shares actually received by executives or major shareholders of listed companies, related information must be recorded in the ownership status report.

A Financial Supervisory Service official explained, "Through the revision of disclosure forms, investors will be able to sufficiently confirm information related to stock-based compensation for company executives and major shareholders and make informed investments, and market participants will be able to monitor whether stock-based compensation is being misused as a means for major shareholders to expand their stakes."

He added, "We plan to inspect the disclosure status of companies' stock-based compensation in the first half of next year and will take necessary measures such as guiding companies to voluntarily correct any insufficient disclosures."

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