[The Editors' Verdict] CEO Kim Taek-jin Should Reconsider Raising the Director Compensation Limit

Published 28 Feb.2020 11:37(KST)

On the 18th, it was reported that game company NCSoft is pushing to increase the director compensation limit at the upcoming regular shareholders' meeting next month, sparking controversy. The plan is to raise the compensation limit paid to directors by 33.3% to 20 billion KRW.

In a capitalist society, it is not unusual for a profit-seeking company to increase director compensation, especially since NCSoft is not running at a loss and its performance is significantly improving. For an ordinary company, this would not be a major issue. However, considering NCSoft as a game company, CEO Kim Taek-jin as an industry leader, and the recent global emphasis on enhancing corporate social value, this is not a matter to be taken lightly.

At the Davos Forum held this January, "stakeholder capitalism" was one of the main topics discussed. It was emphasized that stakeholder capitalism is important to overcome income inequality represented by a 99-to-1 ratio, social conflicts, and the climate crisis. This concept goes beyond the 19th-century American capitalist idea of a corporation as the "property" of shareholders, emphasizing corporate social value and responsibility, and embracing all stakeholders including employees, consumers, and business partners.

Stakeholder capitalism is not a revolutionary or new concept. It has long been studied by the "institutional school" and management science as a driving force behind the competitiveness of Japanese and German companies. Lifetime employment in Japan, respect for consumers, and corporate social value are all strong growth drivers for Japanese and German companies.

Especially, the emergence of platform companies like Google and Facebook and their limitations have further fueled the rise of this concept. The rise of platform companies has created the role of consumers not just as buyers but as participants in corporate activities and key elements in creating corporate value.

However, NCSoft’s recent increase in director compensation shows a phenomenon disconnected from global social trends. In 2019, CEO Kim Taek-jin’s salary and bonuses totaled 13.83 billion KRW. Additionally, he received 13.7 billion KRW in stock dividends this February, meaning he alone took home 27.53 billion KRW. This compensation does not include the salaries of his wife Yoon Song-i, who is the head of NCSoft’s North American branch and participates in management, nor his brother Kim Taek-heon, the senior vice president.

In 2015, during a management dispute with NCSoft, Nexon sent a shareholder proposal demanding the disclosure of the salaries of Yoon Song-i and Kim Taek-heon as one of the measures to increase "corporate value and shareholder value." Even Nexon, pursuing the most capitalistic shareholder value enhancement, demanded the disclosure of their salaries. This is why suspicions are rising that the current increase in the director compensation limit might be a loophole to raise the salaries of these two individuals.

Social pressure surrounding loot boxes is also a significant controversy. Debates continue among civic groups and within the gaming industry over whether loot boxes constitute gambling or gaming. At the 2018 National Assembly audit, CEO Kim Taek-jin appeared as a witness regarding the loot box controversy. There, he claimed that "loot boxes are a technical device to distribute items most fairly to users," which angered gamers. Two loot box-based games, Lineage M and Lineage 2M, rank first in domestic sales and account for most of NCSoft’s revenue. The controversy is expanding as the company plans to raise director compensation based on revenues from these highly "gambling-like" games.

Of course, it is natural to increase the compensation of executives, especially the "dirt spoon executives" who contributed to the company’s growth. The issue lies in the method. If the company wants to reward directors other than family members, it should first disclose the salaries and bonuses of the CEO and his three family members. Also, instead of an ambiguous increase in director compensation, there are ways such as lowering one’s own salary or bonus, or giving one’s own shares. Huawei in China, for example, is not publicly listed but distributes shares to employees annually based on performance, resulting in employee ownership of 98.6%. Is NCSoft unable to match Huawei?

Professor Wi Jeong-hyun, Department of Business Administration, Chung-Ang University