[News Terms] 'Say on Pay' Where Shareholders Monitor Executive Compensation

Financial authorities are pushing to introduce a 'say-on-pay' system, which requires executive compensation, including performance bonuses for CEOs of financial companies such as financial holding companies, to be reviewed at shareholders' meetings.

On the 31st of last month, Kim Joo-hyun, Chairman of the Financial Services Commission, met with the chairmen of the five major financial holding companies?KB, Shinhan, Hana, Woori, and NH Nonghyup Financial Group?at the Seoul Press Center and said, "The government aims to introduce a system that clearly designates executives responsible for managing risks in each business area under the CEO's accountability, so that management can manage various risks with a stronger sense of responsibility." He also expressed his intention to introduce the 'say-on-pay' system regarding the executive compensation structure.

[Image source=Yonhap News]

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The 'say-on-pay' system allows shareholders to publicly express their opinions on executive compensation, preventing financial companies' management from unilaterally deciding their own pay. This system is implemented in countries such as the United States and the United Kingdom. In the U.S., following the 2008 global financial crisis, the Dodd-Frank Act requires publicly listed companies to have their executives' compensation reviewed at least once every three years.

In the U.K., the Companies Act mandates that publicly listed companies submit executive compensation reports to shareholders' meetings for review. Previously, in the 1990s, when public enterprises were privatized in the U.K., excessive executive compensation became a major issue, which led to the initiation of discussions on the 'say-on-pay' system.

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