Governance Forum: "Samsung Electronics Incentive Issue Should Be Addressed Directly, Not Through Public Debate"

On the 23rd of last month, union members were shouting slogans at the "Change Transparently and Achieve Price Ceiling Abolition - 4/23 Struggle Resolution Rally" held in front of Samsung Electronics Pyeongtaek Campus in Pyeongtaek, Gyeonggi Province. Photo by Yonhap News

원본보기 아이콘

There have been criticisms that the widespread social debate surrounding Samsung Electronics' incentive payouts is the result of the company's management and board of directors' incompetence and outdated human resources policies. Critics argue that if the company fails to address the issue directly and leaves it to government intervention, resolving the "Korea Discount" will remain a distant goal.

On May 6, the Korea Corporate Governance Forum issued a statement regarding the recent incentive payout issue at Samsung Electronics. The forum pointed out that the very fact that this has become a topic of public debate indicates that the board and management failed to fulfill their responsibilities. "Compensation and capital allocation are core duties of the board and management, but as Samsung Electronics has been unable to address its 'internal issues' on its own, it is now being dragged into public debate," the forum criticized, adding, "Rather than waiting for the government's decision, the company must resolve the issue itself in order to set a leading example in overcoming the Korea Discount."

The forum proposed institutionalizing stock-based compensation as an alternative. It previously made a similar recommendation to introduce stock-based compensation in October 2024. The forum emphasized, "Society should not incentivize the loudest groups. Incentives should be given to those who bear the risks."

The forum cited examples of major Silicon Valley tech companies in the United States, such as Tesla and Nvidia, which grant stock-based compensation like restricted stock units (RSUs) or stock options each year. "For senior engineers with over ten years of experience at big tech companies, more than half of total compensation is made up of RSUs," the forum noted, adding, "If long-serving employees at a continuously growing company like Samsung Electronics become shareholders through stock-based compensation, it will be a win-win situation."

The forum also stressed the need to make the compensation system more transparent and straightforward. "Apple and Nvidia use indicators such as total shareholder return, sales growth rate, and operating profit growth rate to evaluate performance and determine compensation," the forum stated. "Samsung Electronics should immediately abolish its complicated economic value added (EVA)-based evaluation and compensation system-which is not even used by leading global companies and is unfamiliar to even the company's executives-and establish a new, simple standard," it argued.

The forum further pointed out that the company is responsible for the internal labor-labor conflict. It analyzed that the root of the problem lies in housing multiple business divisions-such as semiconductors, smartphones, and home appliances, each with entirely different characteristics in terms of growth, profitability, and capital intensity-under the single roof of Samsung Electronics. The forum advised that, fundamentally, distinct business units should be separated so that each can pursue its own growth path.

The forum suggested, "Much like the spin-off of Samsung Biologics, Samsung Electronics should be split into three entities: semiconductors, foundry, and consumer. This would help overcome the contradictions of an ownership structure that fails to capitalize on business opportunities due to concerns over conflicts of interest, and enable the foundry business to become self-reliant. Furthermore, the semiconductor and foundry units should be operated under a fully professional management system, while Chairman Lee Jae-yong should take on a role as a member of the board of directors," the forum argued.

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.