South Korea Industry Minister Opposes Operating-Profit-Based Bonuses, Pushes Mandatory Shareholder Votes

South Korea’s industry minister said Aug. 6 that he opposes incentive systems that tie bonuses to operating profit and is pushing for revisions to the Commercial Act and the Capital Markets Act to require shareholder approval for large bonus payouts.

Kim Jung-kwan made the remarks at a Kwanhun Club forum at the Press Center in Seoul.

Kim said shareholders and investors are excluded when companies distribute a set share of operating profit to employees.

"A company’s owners are its shareholders, along with investors who bear the risk," he said. "But in the bonus debate, shareholders and investors are missing."

He added that companies that ignore the views of shareholders and investors would struggle to attract capital, with the damage ultimately falling on management and workers.

Kim said he is discussing with relevant ministries a plan to make shareholder approval mandatory for large bonus payments. That would require amendments to the Capital Markets Act and the Commercial Act, he said.

The idea is that companies should use operating profit first for reinvestment to strengthen future competitiveness rather than for bonus payments.

Kim also referred to the Coupang issue, which has emerged as a pending issue in US-South Korea relations. He said views in the US seem to differ depending on whom he speaks with.

"For example, when I meet US politicians, I get the impression there is a very strong, overly sensitive reaction to Coupang," he said.

By contrast, trade officials he has met at the Commerce Department and the Office of the US Trade Representative have a much better understanding of the essence of the Coupang case.

Kim also said some in US political circles mistakenly see Coupang as a way to reduce the US trade deficit with South Korea.

"Many US politicians think Coupang is helping bring American agricultural, seafood and livestock products into South Korea," he said.

"The essence of the Coupang issue is that information on nearly 80% of South Korean adults was leaked and that went unnoticed for several months," Kim said. He added that when he asks US politicians how the US would treat a company that failed to properly report the breach or follow legal procedures after data on 80% of American adults was leaked abroad, most accept the comparison.

Han Kyung-woo, Hankyung.com reporter case@hankyung.com