Executive Compensation at Financial Firms to Require Shareholder Approval... Push for 'Say-on-Pay' System

Reviewing Measures to Prevent Moral Hazard, Including Clawback of Executive Bonuses at Financial Companies

Financial authorities are considering introducing a "say-on-pay" system, which would require individual executive compensation at financial companies to be reported at shareholders' meetings and approved by shareholders. The introduction of a "clawback" system, which allows for the recovery of previously paid bonuses, is also under review.

According to the financial sector on November 10, the Financial Services Commission and the Financial Supervisory Service plan to revise the "Act on Corporate Governance of Financial Companies" to improve the compensation system for shareholders of financial institutions. The revision aims to prevent executives at financial companies from receiving excessive compensation and to strengthen consumer protection in the financial sector.

The main systems under consideration are say-on-pay and clawback. Say-on-pay is a system that requires executive compensation, including bonuses, to be reviewed at shareholders' meetings. This system is already in place in advanced economies such as the United States and Europe. It was introduced following the 2008 financial crisis, in response to social criticism that key executives, including CEOs, received excessive compensation regardless of their companies' financial difficulties.

The clawback system allows for bonuses to be reduced or recovered if an employee or executive causes losses to the company or damages its reputation through unethical behavior. This system was also introduced mainly in advanced economies after the 2008 global financial crisis. The Financial Services Commission attempted to introduce say-on-pay and clawback in 2023, but the legislation did not pass the National Assembly at that time.

Lee Eogwon, Chairman of the Financial Services Commission, stated during last month's parliamentary audit that the introduction of the clawback system is under review in response to a lawmaker's remark that "while financial accidents at banks are surging, bonuses have increased significantly, and this moral hazard should not be overlooked." Chairman Lee explained, "The clawback system allows a financial company to recover performance-based compensation already paid if losses occur due to work-related reasons," adding, "We will continue to review measures to establish a fair and transparent compensation system in the financial sector within a broad framework."

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